Pilbara Minerals (ASX:PLS) share price bounces back, up 8% on Monday

Pilbara Minerals is making a comeback after a two week selloff.

| More on:
Miner with thumbs up at mine

Image source: Getty Images

The Pilbara Minerals Ltd (ASX: PLS) share price is bouncing strongly on Monday, up 7.92% to $2.18.

This is an encouraging sign of strength following a sharp 17.5% pullback from a record high of $2.46 on 11 August to a close of $2.02 on Friday, 20 August.

Why did the Pilbara Minerals share price fall last week?

Profit taking on the cards

To be fair, Pilbara Minerals had surged 180% year-to-date by 11 August. Such a strong gain would likely attract some selling pressure, especially when its shares surged 38.4% between 1 and 11 August.

Broader weakness among resources

The S&P/ASX 200 Materials (INDEXASX: XMJ) index has tumbled 11.05% in August, predominately driven by weakness in iron ore miners BHP Group Ltd (ASX: BHP), Fortescue Metals Group Ltd (ASX: FMG) and Rio Tinto Ltd (ASX: RIO).

A potential drag on the broader resources sector could be linked to the US Federal Reserve’s July meeting minutes released last week. The minutes flagged that “several participants noted that an earlier start to tapering could be accompanied by more gradual reductions in the purchase pace…”.

The proposed reduction in stimulus witnessed a sharp selloff across major US indices with the Dow Jones Industrial Average, S&P 500 and Nasdaq falling 1.16%, 1.07% and 0.89% respectively on Wednesday, 18 August.

The broader weakness amongst peers and macro concerns could be another factor weighing on the Pilbara Minerals share price.

Bearish broker commentary

According to The Motley Fool US, Bank of America released a report last week reiterating an underperform rating on two of the biggest names in the lithium industry, Albemarle and Livent.

The report warned investors about a near-term increase in lithium supply as miners invest heavily to ramp up production.

“Such a rapid increase in lithium supply threatens to overwhelm even rising lithium demand, and depress the stock prices of Albemarle and Livent.”

Pullback? What pullback?

The Pilbara Minerals share price has rebounded strongly and is 12% away from its 11 August all-time highs.

Encouragingly, lithium spot prices have remained strong, with the latest update from Fastmarkets citing: “Domestic prices for battery-grade lithium in China rose on strong momentum in technical-grade carbonate market and tight supply in spot market.”

It also reported: “Battery-grade lithium prices in Europe and the United States rose on tight availability despite summer lull.”

Should you invest $1,000 in Pilbara Minerals right now?

Before you consider Pilbara Minerals, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Pilbara Minerals wasn't one of them.

The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of August 16th 2021

Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Gainers