Albemarle Corporation (ALB) and Lithium Americas Corp. (LAC) are two global leaders in the specialty chemicals industry. ALB operates in three segments: Lithium, Bromine Specialties, and Catalysts and markets engineered specialty chemicals worldwide. LAC explores lithium deposits in the U.S. and holds interests primarily in the Cauchari-Olaroz Project located in Argentina and the Thacker Pass lithium project located in northern Nevada.
As the Democrats are poised to control both houses of Congress, as well as the White House, for the first time in a decade, the path to a Green New Deal is expected to be smoother. This could mean additional federal support for the cleantech industry. This, along with favorable policies passed by governments around the globe, should boost the demand for EVs and, by extension, boost demand for the lithium-ion batteries that are used in electric cars by many companies. Hence, we think the prospects for lithium stocks like ALB and LAC look bright.
While ALB returned 158.6% over the past year, LAC gained 450.7%. In terms of past six-month performance, LAC is the clear winner with 260.6% gains versus ALB’s 136.2%. But which of these stocks is a better pick now? Let’s find out.
Latest Movements
On January 7, ALB announced the expansion of its lithium production facility in Nevada and the beginning of the evaluation of its resources for commercial production. The company plans to invest $30 -$50 million to double the production of the Nevada site by 2025. This expansion should support increased demand for the domestic supply of lithium.
On November 19, the company announced that it will join as a founding member the U.S.-based Zero Emission Transportation Association, which is an advocate for national policies to enable the full adoption of EV and reduce carbon emissions. This will strengthen the company’s position as a major producer of lithium, actively pursuing a sustainable approach to manage its diverse global footprint.
In December, LAC announced the closing of a $100 million equity offering. The company issued approximately 9.27 million common shares. LAC intends to use the proceeds to fund working capital and for general corporate purposes.
Recent Financial Results
In the third quarter ended September 30, 2020, ALB’s Fine Chemistry Services (FCS) revenue grew 45.2% year-over-year to $46.11 million. The company’s adjusted EBITDA, under this segment, grew 139.1% from the year-ago value to $25 million.
LAC reported $72 million in cash and cash equivalents, including an $18 million drawn from its credit facilities to fund Caucharí-Olaroz, for the third quarter ended September 30, 2020. The company reported a total loss of $6.94 million and an EPS loss of $0.07 over this period.
Here ALB is in an advantageous position.
Past and Expected Financial Performance
ALB’s revenue and total assets grew at a CAGR of 3.7% and 10.8%, respectively, over the past three years. The company’s book value grew at a CAGR of 5.3% over this period.
The company’s EPS is expected to grow 2.5% in 2021. Moreover, its EPS is expected to grow at a rate of 15% per annum over the next five years.
In comparison, LAC’s total assets grew at a CAGR of 25.2% over the past three years. The CAGR of the company’s book value declined 3.6%. LAC’s EPS is expected to grow 18.2% in 2021.
Profitability
ALB is more profitable with a gross profit margin of 33% versus LAC’s negative returns. But LAC’s EBITDA margin of 458% compares favorably with ALB’s 26.3%.
Valuation
In terms of trailing-12-month price-to-book, LAC is currently trading at 17.38x, 265.9% more expensive than ALB, which is currently trading at 4.75x.
Thus, ALB is the more affordable stock here.
POWR Ratings
Both ALB and LAC are rated “Strong Buy” in our proprietary POWR Ratings system. Here are how the four components of overall POWR Rating are graded for ALB and LAC:
ALB has an “A” for Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank. In the 99-stock Chemicals industry, it is ranked #9.
LAC has an “A” for Trade Grade, Buy & Hold Grade, and Peer Grade, and a “B” for Industry Rank. It is ranked #7 of 66 stocks in the Miners – Diversified industry.
The Winner
While both ALB and LAC are good long-term investments considering their market dominance and continued expansions, ALB appears to be a better choice because it is a cheaper investment option for benefitting from the lithium industry’s strong growth potential. Moreover, ALB’s superior financials and higher profitability should help it perform better than LAC.
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ALB shares were trading at $182.43 per share on Tuesday afternoon, up $5.14 (+2.90%). Year-to-date, ALB has gained 23.66%, versus a 1.28% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.
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