Goldman Sachs has been busy running the rule over the lithium industry again this week.
And while the broker remains bearish on the price of the battery making ingredient, it is starting to see value in ASX lithium shares following recent weakness. It commented:
With lithium prices continuing to decline, and stock prices pulling back, we expect increased focus on finding defendable value in the sector, noting the Australian lithium sector is still largely flat YTD. While we remain cautious as these declines and our lowered CY23 lithium forecasts come through realised pricing/earnings on a lagged basis, we see emerging fundamental value in the sector.
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Which ASX lithium shares does Goldman like?
Goldman has buy ratings on just two ASX lithium shares following its recent downgrade of Mineral Resources Ltd (ASX: MIN) to a neutral rating.
These are Allkem Ltd (ASX: AKE), which it has been bullish on for some time, and IGO Limited (ASX: IGO), which has been upgraded to a buy rating from neutral today.
In respect to valuations, Goldman has a price target of $13.20 on Allkem's shares and a price target of $13.90 of IGO's shares. This implies potential upside of 19% and 10%, respectively, over the next 12 months for investors.
Why is it bullish?
Goldman advised that it is bullish on these ASX lithium shares due to their low costs, production growth potential, and vertical integration. It explains:
With our continued expectation that low cost producers with growth optionality & vertical integration will be more defensive and best placed for future opportunities, we reiterate our preference for Allkem (Buy) and upgrade IGO to Buy.
In light of the above, the broker believes that "IGO and AKE deserve to trade at a premium to peers."
Elsewhere, Goldman has maintained its neutral ratings on Liontown Resources Limited (ASX: LTR) and Pilbara Minerals Ltd (ASX: PLS) shares, as well as its sell rating on Core Lithium Ltd (ASX: CXO) shares.
