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Key points
- The Allkem share price has fallen heavily this year
- One leading broker believes this could be a buying opportunity for investors
- Its price target implies upside of ~46% over the next 12 months
Like many in the lithium sector, the Allkem Ltd (ASX: AKE) share price has had a tough start to 2022.
Despite pushing higher today, this lithium miner's shares are still down over 12% since the turn of the year.
Is the Allkem share price in the buy zone?
While the Allkem share price weakness is disappointing for shareholders, it could be a buying opportunity for others.
According to a recent note out of Morgans, Allkem is the broker's top pick in the sector and sees significant upside potential from current levels.
The note reveals that the broker has an add rating and $13.25 price target on the company's shares.
Based on the current Allkem share price of $9.10, this implies potential upside of almost 46% for investors over the next 12 months.
What did the broker say?
Morgans was pleased with Allkem's recent quarterly update and highlights its better than expected production, strong lithium pricing, and production growth potential from new operations.
The broker said: "Our preferred stock for lithium exposure, Allkem. AKE announced a 68% qoq increase in revenue at Olaroz and a 7% CY21 beat of production guidance at Mt Cattlin with large increases in realised prices at both projects. AKE expects USD20k/t for lithium carbonate sales in 2HFY22 at Olaroz. Production growth continues with Naraha commissioning, progress on Sal de Vida and FID expected on James Bay in 2QCY22. Construction is expected to commence the following quarter."
And while the broker suspects that lithium prices could be volatile, it sees scope for them to keep rising.
It explained: "We expect ongoing volatility in the sector as the market seeks to understand how supply and demand will be balanced. We think that while this cycle has moved out of the early stages it still has some room to run in the short term."
All in all, this could bode well for Allkem in 2022.
