Should you buy Orocobre Limited shares after their recent slump?

One of the worst performers on the ASX on Thursday was the Orocobre Limited (ASX: ORE) share price once again.

The lithium miner’s share price finished the day 6% lower at $5.36, bringing its month-to-date decline to a sizeable 13%.

What happened?

One potential catalyst for this decline could have been a broker note out of UBS released that morning.

Although the broker retained its buy rating on Orocobre’s shares, it cut the price target on them down by almost 9% from $8.10 to $7.40 amid concerns over the performance of the miner’s borax division.

As well as that note, Orocobre and the lithium miners appear to have fallen out of favour with investors since Morgan Stanley predicted that the price for the metal would halve over the next few years.

The broker believes increased production in Argentina and Australia will ultimately lead to an oversupply of the metal and a sharp reduction in prices.

While Orocobre and its fellow miners appear confident that prices will remain favourable for the foreseeable future, it hasn’t been enough to convince the bears and certainly not short sellers. Short interest in the lithium miners has been rising over the last few weeks.

The shares of Galaxy Resources Limited (ASX: GXY)Kidman Resources Ltd (ASX: KDR) and Pilbara Minerals Ltd (ASX: PLS) also tumbled notably lower during trade on Thursday.

Should you buy the Orocobre dip?

I think that Morgan Stanley has been overly bearish on its price forecasts and believe that the major lithium miners will only bring on new production when necessary in order to not cause an oversupply.

After all, it is in their best interests to keep the price of the metal high.

In light of this, I feel Orocobre’s recent sell-off could arguably be a buying opportunity. Especially when you consider that UBS’ lowered price target still implies potential upside of approximately 38% from its last close price.

Not sure about the lithium miners yet? Then look at these growth shares that are kicking goals right now.

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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 Scott Phillips.

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