Once symbolizing a leading market opportunity, Albemarle (NYSE:ALB) is finding itself in a seemingly unmitigated spiral. Indeed, ALB stock is suffering from an analyst rating downgrade and severe price target reduction today. Still, while that face-value interpretation implies an extremely dangerous investment, not all market participants share the same bearish view of Albemarle shares.
This morning, UBS downgraded ALB stock to a “neutral” rating from a “buy” rating and slashed its price target by more than 40%. According to Seeking Alpha, analyst Joshua Spector stated that lithium prices have slipped again, “down 7% in the last two weeks.” Further, UBS downgraded its growth forecasts for the electric vehicle (EV) industry due to weaker demand expectations in the U.S. and Europe.
If that wasn’t bad enough, UBS suggested that further downside revisions were not out of the realm of possibility. Interestingly, though, the firm’s price target of $140 still represents upside from the $127.98 closing price of ALB stock last Friday.
While Albemarle features multiple business units, it currently generates the most attention for its lithium production. Unfortunately, however, EV demand has been falling throughout the year. Even worse, aggressive price cuts by Tesla (NASDAQ:TSLA) have so far failed to rejuvenate sentiment.
ALB Stock Is Ugly, But Not Everyone Is Worried
Although the UBS downgrade hurts, the pessimistic development isn’t particularly surprising. Since the start of the year, ALB stock is down more than 44%. In the past 52 weeks, it has also given up more than 58%. That erosion hasn’t stemmed from just one investment bank’s opinion.
One factor that possibly did catch investors off guard was the lithium market’s see-saw effect. Just in September 2022, The Wall Street Journal reported that rising EV demand — most prominently in China — had pushed lithium prices to fresh records. At the time, the concern centered on Chinese lithium demand reducing supply, thus slowing EV adoption more globally.
Now, EV manufacturers and entities within the broader value chain can only hope for such a dilemma. As multiple news agencies have reported, EV inventory at dealerships has soared. Naturally, such reduced demand has negative implications for Albemarle. Nevertheless, not all market participants appear to be bearish on ALB stock.
In the options market, big block trades — which are likely made by institutions — predominantly lean toward bullish ALB transactions in November. To be sure, some traders are hedging their bets or may be outright bearish through the purchase of put options. Still, for derivative contracts expiring in January 2025, open interest trends lean slightly optimistic based on major traders selling puts. That may be a sign that the smart money anticipates an eventual recovery about a year from now.
Why It Matters
Currently, analysts peg ALB stock as a consensus moderate buy. However, this assessment has suffered a hit recently with the reiteration of two sell ratings. Overall, the average price target stands at $202.89, implying nearly 70% upside potential.
On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
