Why Sigma Lithium Stock Soared While the Market Dived Today
Key Points
It's good to be a company involved in lithium production.
After analysts got more bullish on a peer, investors piled into the pure-play company.
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Reflecting the highly reactive element within its name, Sigma Lithium (NASDAQ: SGML) has been a volatile stock over the past few trading days. On Tuesday, its shares zoomed nearly 10% higher, largely due to positive news about a peer, after a significant drop the previous trading session.
An alpha stock for some
That peer is Albermarle, which, although larger and more diversified, still has a significant lithium business.
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Over the past few days, analysts tracking the company have become more bullish, with one -- HSBC's Ishan Jain -- going so far as to upgrade his recommendation to buy from his previous hold.
The surge in optimism is understandable, given that lithium is the primary material used in electric vehicle (EV) batteries. Although EV sales growth has declined recently, upgrade cycles and the current lack of a mass-market alternative to lithium batteries have supported demand for the element.
Additionally, lithium is rapidly becoming the material of choice for batteries used in storage solutions for data centers, currently quite a hot area of investment for businesses that operate such facilities.
The purist's choice
On the back of that bullish new feeling about Albermarle, investors might be thinking Sigma Lithium is the better play on the future of the metal. It's a leaner, more specialized operation, so all things being equal, it's poised to grow more robustly from sustained demand for the material. I think the stock is an ideal pure play for lithium bulls.
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HSBC Holdings is an advertising partner of Motley Fool Money. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends HSBC Holdings. The Motley Fool has a disclosure policy.
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