Why Galaxy Resources Limited shares stormed higher today

The market may have dropped lower today, but that hasn’t stopped the Galaxy Resources Limited (ASX: GXY) share price from storming higher.

In afternoon trade the lithium miner is the best performer on the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) with a 4.5% move higher to $3.18.

Whilst this is undoubtedly a strong gain, according to one leading broker there could be significantly more upside ahead for Galaxy’s shares over the next 12 months.

A note out of Citi today reveals that its analysts have upgraded the lithium miner from a neutral rating to a buy rating with a massive $4.60 price target. This price target implies potential upside of almost 45% from the current share price.

According to the note, the broker believes that the recent lithium miner sell-off was overdone and has left Galaxy trading at an attractive price.

Furthermore, Citi’s analysts believe that lower lithium prices in the future had already been factored into its current share price, making the oversupply sell-off unnecessary.

What about the other lithium miners?

It wasn’t just Galaxy that found favour with Citi today. Fellow lithium miner Orocobre Limited (ASX: ORE) was also upgraded to a buy rating by the broker for the same reasons. It has an $8.00 price target on Orocobre’s shares, equating to potential upside of around 25% for its shares over the next 12 months.

Elsewhere, analysts at Ord Minnett have retained their buy rating and $20.50 price target on industry peer Mineral Resources Limited (ASX: MIN) after it delivered first-half operating earnings ahead of their expectations last week.

Should you invest?

I think Galaxy, Mineral Resources, and Orocobre are very investable, but only for those with a high tolerance for risk. With a significant amount of future growth built into their respective share prices, they are likely to be amongst the more volatile shares on the market.

But ultimately I expect them all to generate high levels of free cash flow from their operations in FY 2018, making them some of the better options in the resources sector today.

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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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