Why is the Allkem (ASX:AKE) share price in the spotlight this week?

This lithium miner is catching the eye on Wednesday…

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An ASX200 market analyst holds his hand to his chin and looks closely at his computer screens watching share price movements

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The Allkem Limited (ASX: AKE) share price is having a strong day on Wednesday.

At the time of writing, the lithium miner, formerly known as Orocobre, has seen its shares rise 4% to $8.87.

This means the Allkem share price is now up almost 100% in 2021.

Why is the Allkem share price rising?

Investors have been bidding the Allkem share price higher this week after S&P Dow Jones Indices revealed that it was adding the company to the illustrious ASX 100 index at the next quarterly rebalance.

This can be a big boost for a company’s shares for a couple of reasons. One is that index funds that track the index have to buy shares to reflect the change.

The other is that many fund managers have strict investment mandates. This often includes only being able to buy shares in certain indices such as the ASX 100 or ASX 200. And given the limited options on the ASX 100 for exposure to the clean energy transition, this makes Allkem a potentially attractive option for fund managers.

Where next for its shares?

One leading broker that is recommending Allkem to clients at the moment is Macquarie Group Ltd (ASX: MQG).

Its analysts currently have an outperform rating and $12.00 price target on the company’s shares.

Based on the current Allkem share price, this implies potential upside of 35% over the next 12 months. Not bad considering its shares have already almost doubled in value this year.

Macquarie likes Allkem due to its exposure to both lithium brine in South America and lithium spodumene production in Australia. It feels this leaves the company well-placed to benefit from the insatiable demand for lithium from the electric vehicle market.

Should you invest $1,000 in Allkem right now?

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Motley Fool contributor James Mickleboro owns shares of Allkem Limited. 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 recommended Macquarie Group Limited. 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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