Albemarle Stock Lost 8.9%, Buy Or Wait?

Albemarle (ALB) stock is down 8.9% in a day. History of recovery post-dips is not on your side and there is fundamental risk – specific to growth, profitability and downturn resilience. Consider the following data:

• Size: Albemarle is a $11 Bil company with $5.0 Bil in revenue currently trading at $96.23.
• Fundamentals: Last 12 month revenue growth of -33.0% and operating margin of -4.6%.
• Liquidity: Has Debt to Equity ratio of 0.33 and Cash to Assets ratio of 0.1
• Valuation: Albemarle stock is currently trading at P/E multiple of -12.2 and P/EBIT multiple of -12.1
• Has returned (median) 13.6% within a year following sharp dips since 2010. See ALB Dip Buy Analysis.

While we like to buy dips if the fundamentals check out – for ALB, see Buy or Sell ALB Stock – we are wary of falling knives. Specifically, it is worth trying to answer if things get really bad, and ALB drops another 20-30% to $67 levels, will we be able to hold on to the stock? What is the worst case scenario? We call it downturn resilience. Turns out, the stock has fared worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

A single stock can be risky, but there is a huge value to a broader, diversified approach. Should you buy one stock you like or build a portfolio designed to win across cycles? Our numbers show that the Trefis High Quality Portfolio has turned stock-picking uncertainty into market-beating consistency. This portfolio is incorporated in the asset allocation strategy of Empirical Asset Management — a Boston area wealth manager and Trefis partner — whose asset allocation framework yielded positive returns during the 2008-09 period when the S&P lost more than 40%.

Below are the details, but before that, as a quick background: ALB provides engineered specialty chemicals across Lithium, Bromine, and Catalysts segments, including lithium compounds, fire safety solutions, chemical synthesis additives, and industrial purification products.

2022 Inflation Shock

• ALB stock fell 65.2% from a high of $325.38 on 11 November 2022 to $113.26 on 5 December 2023 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• The stock is yet to recover to its pre-Crisis high
• The highest the stock has reached since then is $152.39 on 26 December 2023 , and currently trades at $96.23

 
2020 Covid Pandemic

• ALB stock fell 46.0% from a high of $94.31 on 20 February 2020 to $50.90 on 23 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 1 September 2020

 
2018 Correction

• ALB stock fell 59.0% from a high of $144.58 on 8 November 2017 to $59.30 on 27 August 2019 vs. a peak-to-trough decline of 19.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 22 December 2020

 
2008 Global Financial Crisis

• ALB stock fell 66.9% from a high of $47.76 on 31 October 2007 to $15.81 on 5 March 2009 vs. a peak-to-trough decline of 56.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 5 October 2010

 
It is a good thing to keep in mind how low ALB could go during a downturn. And you should also check how the stock fared when compared with the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 — the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.