LIT: Bearish Momentum Trends, The Valuation Case Hasn't Improved Much

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Germany expects a decline in EV sales in 2024, signaling a potential slowdown in the electric vehicle market.Used EV prices have seen a significant decline too, indicating weaker demand for electric ...

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PhonlamaiPhoto There have been several headlines and data points recently casting shade on the electric vehicles [EV] boom. Bloomberg reported that Germany now expects its first annual decline in EV sales in eight years. What’s more, domestic automakers are beginning to shift back toward internal combustion engine [ICE] and hybrid vehicles, given softer consumer demand for EVs. Finally, I took a look at the latest Manheim Used Vehicle Value Index – it shows the steepest wholesale price dip being in the EV category. These are concerning trends, and ongoing weakness in China does no favors for the demand for lithium-related stocks. I reiterate my hold rating on the Global X Lithium & Battery Tech ETF (NYSEARCA:LIT). After breaching key support I pointed out last year, the fund sports an intriguing valuation, but momentum must recover before a well-rounded bull case can be made. German EV Sales Expected To Dip in 2024 Bloomberg EV Used Vehicle Prices Down Big YoY Manheim According to the issuer, LIT offers investors exposure to the high-growth potential of lithium battery technology, a key component in the rise of EVs, renewable energy storage, and mobile devices. Per Global X, with Lithium-ion battery prices having dropped 89% between 2010 and 2021, EVs are becoming more competitively priced compared to traditional ICE vehicles. The fund's unconstrained approach spans companies across the entire lithium supply chain, from mining to refinement and battery production, providing diversification and opportunities across sectors and geographies. LIT’s assets under management has declined to just $1.6 billion as of February 9, 2024, and its high annual expense ratio of 0.75% should be seen as a concern for long-term investors, in my opinion. The ETF pays a small 1.4% trailing 12-month dividend yield, while share-price momentum has been exceptionally poor over many timeframes. Risk metrics are also concerning given high volatility, concentration, and with the fund’s price trading well below key moving averages. Still, liquidity with LIT is decent considering average daily volume of more than 600,000 shares and a median 30-day bid/ask spread of 10 basis points. I encourage investors to use limit orders during the less liquid periods of the trading day, however. Looking closer at the portfolio, the two-star, bronze-rated ETF by Morningstar has diversification across the style box. While primarily a large-cap fund, more than 20% of LIT is considered mid-cap, while 10% is considered small-cap in size. The earnings multiple is compelling at less than 15 considering the fund’s historical earnings growth rate, but I would note that the P/E has actually risen from Q3 of last year. Investors should take caution in light of LIT’s high volatility factor exposure. LIT: Portfolio & Factor Profiles Morningstar What makes the allocation even more risky is that more than half of its assets are in the top 10 positions. Its largest component, Albemarle (ALB), is down 56% in the past year, while six of the other top 10 stocks are down 18% or more in the past 12 months. Finally, there is little in the way of sector diversification, as just four areas of the market make up LIT’s full composition. LIT: Holdings & Dividend Information Seeking Alpha Seasonally, LIT has tended to perform poorly in March over the past 10 years before significant gains have been seen from April through July. So, we are nearing a bullish stretch, but we are by no means through the bearish woods. LIT: Bullish Seasonal Trends Begin in April Seeking Alpha The Technical Take I pointed out key support in my write-up last year. The $57 to $58 zone was crucial for the LIT bulls to defend. Unfortunately, shares broke down through that range in a big way. Notice in the chart below that shares plunged into the mid-$40s before a minor rally to just above $52 at the turn of the year. 2024 brought about more selling pressure, however, and LIT recently dropped under the $40 mark. The ETF’s long-term 200-day moving average remains severely negatively sloped, and there is a high amount of volume by price starting in the high $50s that will make any longer-term rally attempts hard on the bulls. But take a look at the top of the graph. The RSI momentum oscillator reached its most oversold condition in the last three years. There is certainly the chance that a continued bounce back up to $46 could be in play, but the overwhelming weight of all pieces of evidence suggests that the bears are in control.  Overall, while a continued rally could be in store, I see more downside risks ahead. LIT: Bearish Technical Breakdown Last September, Possible Bounce Into the Mid-$40s Stockcharts.com The Bottom Line  I reiterate my hold rating on LIT. I assert that it might be too late to get short this low-valuation portfolio following the technical breakdown late last year. Oversold reading could lead to a continued short-run bounce into the mid-$40s.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2411331198"}