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Here's Why You Should Hold Onto Albemarle (ALB) Stock for Now

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Albemarle Corporation (ALB - Free Report) is benefiting from higher lithium volumes on rising demand, capacity expansion and cost-saving actions amid headwinds from elevated raw material costs and demand weakness in specialties.

Shares of Albemarle are down 24.3% over a year compared with a 13.2% decline of the industry.


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Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.

Strong Lithium Demand to Drive Results

The North Carolina-based company is gaining from higher volumes in its lithium business. Higher customer demand, new capacity and plant productivity improvements are supporting volumes. The La Negra III/IV expansion in Chile and an increase in tolling volumes to meet rising customer demand are contributing to higher volumes as witnessed in the first quarter of 2023.

Albemarle is also benefiting from cost-saving and productivity initiatives. Its cost actions are expected to support its margins in 2023.

The company is also strategically executing its projects aimed at boosting its global lithium conversion capacity. It remains focused on investing in high-return projects to drive productivity. The company is well placed to gain from long-term growth in the battery-grade lithium market.

Albemarle's Kemerton I lithium hydroxide conversion plant in Western Australia achieved first product in July 2022. Kemerton II has also achieved mechanical completion and the plant is progressing through the commissioning phase. ALB has also announced the final investment decision to build Kemerton III and IV. The acquisition of the Qinzhou plant in China will also boost the growth of conversion capacity and drive lithium volumes.

Moreover, the company recently announced the site for its lithium mega-flex facility in Chester County, SC. The new hydroxide facility will include an initial investment of $1.3 billion or more, enabling the company to meet the increasing demand for electric vehicles and lithium-ion batteries.  

Albemarle's Mega-Flex plant will process various lithium feedstock, that includes recycled batteries, to manufacture roughly 50,000 metric tons of battery-grade lithium hydroxide annually. The capacity can be increased to 100,000 metric tons and support the manufacture of about 2.4 million electric vehicles yearly. The facility also aligns with the Inflation Reduction Act, which promotes the localization of crucial minerals in North America.

The company stated that the new facility is designed to boost the production of lithium resources in the United States, which will contribute to the clean energy revolution and enhance proximity with its customers as the North American supply chain expands.

Input Cost Inflation, Destocking Are Concerns

The company’s Ketjen unit faces headwinds from higher costs. The business is expected witness challenges, in the near term, from increased raw material costs, which is likely to continue to hurt margins. Albemarle expects raw material cost inflation to remain a headwind for this unit in 2023.

The company’s Specialties unit is also exposed to weaker demand and customer inventory destocking, which are impacting volumes. ALB faces headwinds from demand weakness in consumer electronics. Softer demand and destocking are expected to continue to impact volumes in the second quarter of 2023.



Stocks to Consider

Better-ranked stocks worth considering in the basic materials space include AngloGold Ashanti Limited (AU - Free Report) , L.B. Foster Company (FSTR - Free Report) and Linde plc (LIN - Free Report) .

AngloGold Ashanti currently carries a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for AU’s current-year earnings has been revised 22% upward in the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.

The consensus estimate for current-year earnings for AU is currently pegged at $1.94, reflecting an expected year-over-year growth of 50.4%. AngloGold Ashanti’s shares have popped roughly 32% in the past year.

L.B. Foster currently carries a Zacks Rank #1. The Zacks Consensus Estimate for FSTR's current-year earnings has been stable over the past 60 days.

L.B. Foster’s earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 140.5%, on average. FSTR has gained around 3% in a year.

Linde currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for LIN’s current-year earnings has been revised 3.8% upward in the past 60 days.

Linde beat Zacks Consensus Estimate in each of the last four quarters. It delivered a trailing four-quarter earnings surprise of 6.9% on average. LIN’s shares have gained roughly 8% in the past year.

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