What happened
Lithium stocks crashed on Wednesday, with nearly every stock from the industry trading deep in the red by afternoon. Here's how much the worst-performing lithium stocks had fallen as of 12:50 p.m. ET Wednesday:
- Albemarle (ALB 1.65%): Down 10.2%.
- Livent (LTHM): Down 15.6%.
- Piedmont Lithium (PLL 6.57%): Down 16%.
You'd think lithium prices would be the culprit, but that's not the case. Lithium prices continue to hold up strong -- it's where lithium prices could head that's spooked the markets today.
So what
Lithium prices have shot for the moon in recent months, even hitting an all-time high in the month of March. Prices are still up almost 69% year to date as of this writing, according to data from Trading Economics. As prices rose, so did shares of lithium companies. It didn't matter whether a company was an established one or had yet to generate any revenue from lithium.
With demand for electric vehicle (EV) batteries -- most of which are lithium-ion batteries -- exploding, most investors believed the rally in lithium prices is here to stay.
Goldman Sachs, though, just poured cold water on investors' hopes, and its prediction is so scary that investors in lithium stocks are running for the hills.
Image source: Getty Images.
Goldman Sachs foresees prices of all battery metals sinking over the next couple of years, including lithium, cobalt, and nickel. Goldman sees lithium prices dropping more than 10% to $54,000 per ton this year, and then down all the way to around $16,000 a ton in 2023. That would mean a staggering 70%-plus plunge from the current spot lithium price.
Although Goldman Sachs is bullish about battery metals, it believes the bull run is over as supply catches up thanks to recent investments in the industry. The investment bank sees a period of oversupply over the next couple of years or so, followed by another bull run that should send prices of battery metals soaring again from 2024 onward.
Now what
I'd take Goldman Sachs' views with a grain of salt and stay invested in top lithium stocks. For example, I consider every drop in Albemarle stock an opportunity.
As the world's largest lithium mining companies with some of the richest lithium resources under its belt, Albemarle is well positioned to benefit from a rise in demand for lithium-ion batteries alongside EVs. Albemarle recently raised its 2022 guidance twice, and despite being in a commodity business, the company has raised its dividend annually for 28 consecutive years now. That dividend streak itself speaks volumes about Albemarle's confidence in its business.
Piedmont Lithium, comparatively, is still in the development stage, so it's a speculative lithium stock for now. Livent is in much better stead, having generated $420 million in revenue last year with nearly 70% of it coming from Asia. Livent is expanding capacity in Argentina and China while looking to double its stake in Canada's Nemaska lithium project. Livent is so excited about the lithium markets right now that it expects its 2022 adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) to grow almost fivefold from last year at the higher end of its outlook.
I'll leave you with another point to ponder: In mid-December 2021, Goldman Sachs rang a warning bell on Albemarle stock as it saw "limited upside," citing incoming supply in the industry.
