Why Lithium Americas Stock Just Spiked 14%

view original post

What happened

Shares of lithium miner Lithium Americas (NYSE:LAC) exploded higher on Tuesday, up 13.8% as of 2:10 p.m. ET — and for good reason.

This morning, not one, but two separate Wall Street analysts decided that Lithium Americas stock is a buy.

Image source: Getty Images.

So what

In the first big upgrade of the day, German banker Deutsche Bank announced it is raising its rating on Lithium Americas to a buy with a $34 price target. As the analyst explains in a note covered by StreetInsider.com, “lithium market fundamentals [are] tightening, with Lithium producers well positioned to benefit from a favorable pricing environment.”

That’s the general rule. More specific to Lithium Americas, Deutsche notes that the company is expected to begin production at its Cauchari-Olaroz asset in Argentina “mid-year” — a development that would give currently profitless, and revenueless, Lithium Americas at least a bit of revenue upon which to value its stock.

No sooner had Deutsche released its note, though, than fellow investment banker Piper Sandler chimed in with an upgrade of its own. Raising Lithium Americas stock to overweight, Piper predicted the stock could go as high as $41 this year — as much as a 34% gain from current prices.  

“LAC holds the keys to a multitude of game changing catalysts to help unlock value as operations begin and the potential for permits at Thacker Pass come to fruition,” explained the analyst. For one, Piper believes Lithium Americas could obtain permits to begin mining at Thacker Pass in Nevada as early as February or March of this year. And for another, the analyst agrees with Deutsche that Argentine production should begin in the second half of 2022.

Now what

Mind you, all of the developments these analysts are forecasting remain months in the future. At present, Lithium Americas has no substantial production, no revenue, and of course no profits either.

That being said, with the price of lithium rising, Wall Street analysts are optimistic that this will soon change. Indeed, according to data from S&P Global Market Intelligence, analysts on average forecast that by the end of this year, Lithium Americas could be reporting at least pro forma profits — and true profitability according to generally accepted accounting principles (GAAP) could begin as early as next year.

No wonder analysts are rushing to place bets on Lithium Americas as soon as they possibly can. And no wonder investors are doing the same thing today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.