What happened
Shares of Albemarle (NYSE: ALB) fell 10% in March, according to data provided by S&P Global Market Intelligence. That cut the company’s first-quarter stock price rise to just 6% or so, after it hit a year-to-date gain of around 20% in late February. The story here is all about lithium.
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So what
Lithium prices peaked in February, but ended March well off their recent highs. Albemarle’s stock price generally tracks the ups and downs of the lithium market, since producing the metal is a key business for the company. Thus, it shouldn’t come as much of a surprise that the company’s shares fell. However, late in the month Albemarle also reported that supply disruptions at one of its facilities would push production expected to occur in the first quarter into later quarters. The impact could lower first quarter revenue by as much as $45 million, with EBITDA falling by as much as $18 million. That’s a double dose of bad news.
The interesting thing about Albemarle, however, is that lithium is just one of three main businesses it operates. It also makes bromine (used as a fire retardant in electronics) and catalysts (used in the energy industry). These two divisions produced roughly 60% of the company’s sales in 2018. So, while the big growth story is lithium, where the company is rapidly expanding its capacity, the issues that unit faces currently aren’t likely to derail Albemarle’s overall results. In fact, management noted that it is maintaining its full year outlook, which suggests that production will remain strong, and more than offset any weakness in lithium prices.
In other words, the bigger story really hasn’t changed. Yes, the first quarter results could be worse than originally forecast. But Mr. Market was likely overreacting when it pushed the shares lower by 10%.
Now what
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If you have been looking for a way to invest in global trend toward electrification, notably in the automotive sector, Albemarle is worth a deep dive. Demand for lithium, which is a key component of rechargable batteries, is expected to continue to grow at a rapid clip. Albemarle is using its bromine and catalyst businesses to help fund the expansion of its lithium operations to meet that demand. Neither the shifting price of the commodity, nor a short-term headwind due to difficulties at one lithium producing facility, will change that story.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool owns shares of Albemarle. The Motley Fool has a disclosure policy.
