The lithium industry has been having a terrible time of late due to falling battery material prices.
Given how heavily ASX lithium stocks have fallen, investors may be wondering if it has created some buying opportunities.
Well, analysts at Goldman Sachs have picked out one ASX lithium stock that they believe is a buy and named another they think investors should sell. They are as follows:
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IGO Ltd (ASX: IGO)
Goldman thinks that IGO could be an ASX lithium stock to buy. This is thanks to its low costs, which leave it well-positioned in the current environment. It said:
We see a widening discount supporting our relative preference for IGO (Buy) with Greenbushes expansion (and opportunity for value optimisation) and JV balance sheet risks overdone, with the AISC of Greenbushes well below peers.
The broker currently has a buy rating and $7.15 price target on the company's shares. Based on its current share price of $5.92, this implies potential upside of approximately 21% for investors over the next 12 months.
Pilbara Minerals Ltd (ASX: PLS)
Its analysts think that Pilbara Minerals is an ASX lithium stock to sell right now. It highlights that the lithium giant trades at a premium to peers and doesn't believe this is deserved. It said:
PLS (Sell) continues to trade at fundamental premium vs. peers, including on both EV/EBITDA and EV/LCE production even when including an underwhelming 'P2000' expansion scenario.
Goldman currently has a sell rating and $2.60 price target on the company's shares. Based on its current share price of $3.02, this suggests that its shares could fall approximately 14% over the next 12 months.
What about the lithium market outlook?
Goldman Sachs has been (correctly) bearish on the lithium market for some time. Unfortunately, nothing has changed with this view and the broker continues to believe that prices will remain depressed due to supply outstripping demand.
In addition, it highlights that more supply is coming to the market, which it suspects could keep prices lower for longer. The broker explains:
New lithium volumes still being added in market surplus: With lithium spot prices still sitting near the top end of the integrated cash cost curve, we have yet to see meaningful volumes come out of the market or new projects get deferred. In fact, new projects continue to be proposed (i.e. PLS' 'P2000'), or progressed. DLE is also set to become a commercial reality outside China later this year with Eramet recently inaugurating its new plant. With this backdrop (where we note lithium auctions have each achieved a lower price than the last since mid-April), we continue to factor in near term pricing weakness over 2H CY24 and CY25.
This could be bad news for ASX lithium stocks and restrict any meaningful rebound in the near future.
