It has been a fantastic six months for my pick in InvestorPlace.com’s Best Stocks for 2017 contest. Even after it dipped more than 9% from a 52-week high in early June, Albemarle Corporation (NYSE:ALB) has still managed to rack up a spectacular 23% first-half gain.
For those of you who are unfamiliar with this name, let me give you a quick introduction. Albemarle is a global specialty chemicals company that is a leader in lithium, bromine, refining catalysts and applied surface treatments. It’s one of three major global players in the lithium sector and owns lithium brine operations in Chile and the United States, as well as a stake in a mine in Australia.
In simpler terms, ALB is a play on the huge NexGen lithium theme, which is one I follow closely and expect to make us a lot of money in the years ahead.
NexGen Lithium Trend Remains Strong
After a strong start to the year and nearly straight-up 35.5% climb, Albemarle has fallen victim to some of the broader market’s selling over the last three weeks. I have to say I’m not that surprised though. The day the weakness began in ALB was the same day the S&P 500 started to pull back after hitting an all-time high 24 hours earlier, so a lot of the selling can be attributed to systemic risk.
Plus, the NexGen lithium theme that has driven ALB to new high after new high remains intact and is gaining even more momentum behind it.
In fact, a recent 85-page research report by UBS Securities suggests that lithium prices will stay close to $8,500 a ton through 2024 as new supply won’t likely be able to keep up with increasing demand.
Another eye-catching stat in the report suggests that lithium production will need to increase by close to 3,000% in the years ahead in order to meet that demand.
The general public will focus on the growing demand for electric vehicles, which I agree is a huge story. However, the other aspect of the lithium story is the increasing demand of lithium for large-scale battery storage. Tesla Inc (NASDAQ:TSLA) is just one of many companies looking to change the way energy is stored for both industrial and residential buildings.
The ALB Stock Chart Keeps Climbing
Looking at the technicals, it’s clear that ALB stock remains in a long-term uptrend. However, the shares have recently fallen on above-average volume.
I view the short-term outlook as neutral, as it’s possible the stock could weaken to the $95-$100 area if it doesn’t hold current support levels. That lower price is important because several additional support levels are in the vicinity: the 200-day moving average (the red line), which ALB has held above for years; a previous area of resistance at $96 (the black line); and the top of a gap in late February.
As long as that level holds, a pullback to $100 would be an opportunity for long-term investors who believe in the NexGen lithium theme and want to own one of the three biggest names in the space. I suspect any such weakness would entice buyers to step back in.
It’s also worth noting that Albemarle will report second-quarter earnings on Aug. 7. The Street is looking for earnings of $1.10 a share. The company has beat estimates by an average of 7.5% the last two quarters, which tells me the odds of a near-term catalyst are good.
Over the long term, I continue to see higher prices for ALB stock and view it as one of the best plays on the growing lithium trend.
Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt just launched two new investment advisories focused around the “next” generation investing theme. His trademark three-prong investing approach targets the mega-trends old Wall Street is missing out on. Click here for more information on the “NexGen” Experience.