The lithium miners have sunk deep into the red today

One area of the market which hasn’t fared well today is the resources sector. At the time of writing the S&P/ASX 200 Resources (Index: ^AXJR) (ASX: XJR) is down almost 1.5% due largely to a sell-off triggered by a pull-back in commodity prices overnight.

Within the resources sector there is one industry in particular which stands out as being a major drag on proceedings – the lithium miners.

Here is the state of play in the industry today:

  • The Argosy Minerals Limited (ASX: AGY) share price is 2% lower at 44 cents.
  • The Avz Minerals Ltd (ASX: AVZ) share price has tumbled 2.5% to 32 cents.
  • The Galaxy Resources Limited (ASX: GXY) share price is down 4.5% to $4.07.
  • The Kidman Resources Ltd (ASX: KDR) share price is 4% lower at $2.04.
  • The Lepidico Ltd (ASX: LPD) share price is off 4% to 7.1 cents.
  • The Orocobre Limited (ASX: ORE) share price is in a trading halt.
  • The Pilbara Minerals Ltd (ASX: PLS) share price has fallen 4.3% to $1.08.

What happened?

As one of the best performing and most volatile areas of the market in recent months, profit-taking in the lithium industry was always going to be severe when the resources sector pulled back.

Furthermore, although Galaxy Resources delivered a strong quarterly result yesterday, it was more or less in line with what the market had been expecting. I believe some investors had been expecting it to outperform and had therefore bid up its shares and the shares of its peers.

But with the majority of Australia’s leading brokers holding firm with their price targets and neutral ratings, investors have jumped ship this morning.

Macquarie, Morgan Stanley, and UBS all have the equivalent of neutral ratings on Galaxy’s shares with prices targets of $4.00, $3.70, and $3.60, respectively.

Should you invest?

While I think the lithium miners, and Galaxy in particular, have bright futures ahead of them due to the strong demand being experienced for lithium carbonate, I do think that they are all about fair value now.

As this doesn’t provide investors with a compelling risk/reward, I would suggest that investors hold off an investment until the lithium miners’ shares trade about 10% lower than where they are today.

In the meantime, I think these hot growth stocks are in the buy zone and could provide strong returns this year.

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Motley Fool contributor James Mickleboro owns shares of Galaxy Resources Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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