Commodities have been in a bull market for some time. But with oil prices well off their highs, and with precious metals failing to break higher even with high inflation rates, prices have moderated somewhat.
But some commodities have stronger fundamentals, especially in the years ahead. The metals space is one area, as a recovering global economy has greater demand for these commodities than the current supply.
One such commodity is lithium. Critical for rechargeable batteries in everything from cell phones to cars, it’s the one commodity where likely demand will most outstrip supply.
In this space, there are few players.
Ablemarle (ALB) is a major player in this space. The company just reported better-than-expected earnings and raised full-year guidance.
Action to take: Shares are up about 30 percent over the past year following the stock’s post-earnings rally. Yet the stock trade at about 30 times forward earnings. While a commodity stock isn’t best gauged on current earnings, rising lithium prices in the years ahead should bode well for earnings growth in the future. Investors should consider shares with a multi-year time horizon.
For traders, the January $300 calls, last going for about $10.00, offer traders the potential to leverage a further rally in shares through the rest of the year. If the current rally continues, the option can likely deliver mid-to-high double-digit gains.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.
