Q3 Lithium Rally

With Q3 2017 coming to a close, we thought we’d look back on the quarter, since it has certainly been a great one for existing and potential lithium producers.  Many of the names, particularly the non-Aussie producers in the space were already enjoying a great year coming into July.  But that was nothing compared to the liftoff we saw this quarter. Below, you can see a handful of companies that have enjoyed strong returns, and their performance in the quarter.

Q3.png

How’d they fare?

All of the above stocks delivered impressive results, with Lithium Americas leading the pack.  Altura, which has done a great job getting broader exposure to investors, was right behind them.  Additionally, we thought it was interesting to note that passive investors (via the LIT ETF), while not faring better than everyone, did manage to beat investors of ALB and FMC.

In the quarter, FMC and Albemarle were the first to report earnings.  And while both posted strong results, FMC continued to rip higher while ALB endured a much needed pullback. However, investors quickly bought the dip allowing the stock to recover promptly.  Furthermore, the stock broke out right after SQM’s investor day.  In fact, if we look at the charts of many of the above stocks, they all took a turn higher on that same day.  It looked like a big buy program swept through the lithium stocks as a result of the positive sentiment generated from the investor day.  

Where do we go from here?

While this momentum is fun and exciting for investors who are already in the names, we asked ourselves what the landscape looks like going forward.  Well, for starters, while we don’t think valuations are outrageous, it’s definitely reasonable to believe that they are a bit ahead of themselves after the run up.  And it looks like many market participants agree with that sentiment, as the bigger gainers have come off of their highs (SQM was up 93% and LAC over 100% at their peaks).  

However, whether shorter term investors ran for the exits, or longer term players decided to trim their positions, in our opinion the overall longer term story is still in tact.  And as more and more investors start to learn about the lithium story and enter the trade, it’s quite possible that we see more run-ups like the one we exhibited this past quarter.  So while it’s never a good idea to buy into the momentum, investors who believe in the story and are waiting for an opportunity to enter, might find it beneficial to take a look at their preferred lithium stocks on pullbacks.  Alternatively, for those believing that the run up is madness, and that lithium is just another fad, the opposite may well be true.  These individuals can use the rips to build short positions.

And as always, for help in the research process, readers can check out our valuations and overall thoughts on these companies through our company specific analyses (see Altura, and Albemarle pieces) as we continue to roll them out over the coming weeks.

 

As a reminder, our thoughts are 100% our own, and should not be taken as investment advice.  Investors should do their own due diligence prior to making investment decisions.

Leave a Reply

Your email address will not be published. Required fields are marked *