Livent is Wednesday's IBD Stock Of The Day as the lithium stock, hanging tough in a brutal market, rallies above a key support level.
Top lithium stocks including Livent, Albemarle and SQM have largely bucked this year's bear market because lithium is among the rare commodities that have remained unsinkable amid intense Federal Reserve monetary tightening. The benchmark lithium index shows prices up 120% year to date and 307% above a year ago.
Tight Lithium Outlook
Demand for the key battery material has proved insatiable as global automakers ramp up EV production. While Livent and others are working furiously to expand capacity, the job is painstaking and frequently characterized by delays. And new mines face high regulatory hurdles and take years to come online.
The outlook for mulityear supply deficits has put lithium producers in the driver's seat when it comes to contracting. Surging profits this year partly reflect contract renegotiations to more closely reflect market prices.
On July 26, Livent announced a new supply agreement to build out processing capacity in the U.S. to supply General Motors. GM agreed to make an upfront payment of $198 million to fund the project, which will be key for GM EVs to qualify for tax credits under the Inflation Reduction Act.
Automakers "are becoming more focused on securing reliable lithium supply to support their own aggressive electrification plans," Livent CEO Paul Graves said in his Aug. 2 Q2 earnings statement.
Livent Boosts Lithium Capacity
Along with its Q2 earnings report, Livent raised full-year revenue guidance to a range of $800 million to $860 million, up from $755 million to $835 million.
Livent also said an additional 10,000 metric tons of lithium carbonate capacity in Argentina is on track for commercial production by the first quarter of 2023. In addition, a 5,000-metric-ton expansion of lithium hydroxide capacity in Bessemer City, N.C., should enter commercial production during Q4 of this year. A further 10,000-metric-ton expansion in Argentina, targeted for the end of 2023, would nearly double Livent's 2021 capacity.
The company also said it expects to add 15,000 metric tons of capacity in China at a new location by the end of 2023.
Lithium Stocks
LTHM stock rose 2.7% to 32.17 in Wednesday stock market action as the broad market enjoyed a relief rally. The move higher came after a soft open saw the lithium stock fall back close to its 10-week moving average.
Often when a leading stock like Livent pulls back to its 50-day or 10-week line, then springs higher, that can be a good opportunity to pick up shares for the next move higher. That's especially the case when the bounce off the 10-week line comes in high volume, consistent with institutional buying. Today's lacked such conviction.
Among other lithium stocks, ALB stock rose 3.1% to 277.95, also moving off its 10-week/50-day line in below-average volume. Meanwhile, SQM stock climbed 1.2% to 95.33, but it has yet to reclaim its 10-week line after knifing through it last week.
Given the extreme volatility of trading recently, and with the market trend in a correction, investors should wait for more ideal setups and a follow-through day.
Be sure to read IBD's daily afternoon The Big Picture column to stay on top of the prevailing market trend and what it means for your trading decisions.
