These ASX lithium shares are a buy despite explosive supply forecast: UBS

This broker has given its verdict on lithium shares.

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Key points
  • ASX lithium shares have taken a beating in recent weeks
  • But most are still up substantially over the past few years
  • So which ASX lithium shares does broker UBS rate as a buy?

By now, most ASX investors would be familiar with the runs that most ASX lithium shares have been on over the past year or two. Although the past few weeks have cruelled these companies' share prices somewhat, the fact remains that long-term investors are still sitting on some tidy profits. 

Take the ASX 200's largest lithium share, Pilbara Minerals Ltd (ASX: PLS). Yes, Pilbara shares have fallen more than 30% over the past two months or so, going from over $5 a share to the $3.52 we see today.

But this company still remains up 23% over the past 12 months, and up by an extraordinary 2,250% over the past three years:

It's a similar story with Core Lithium Ltd (ASX: CXO), Sayona Mining Ltd (ASX: SYA), Mineral Resources Limited (ASX: MIN), Liontown Resources Ltd (ASX: LTR) and Allkem Ltd (ASX: AKE). To varying degrees though, of course.

For example, since the start of 2021, Sayona shares have gained an eye-watering 2,000%, rising from 1 cent per share to the 21 cents per share the company is currently going for. But Allkem shares have risen by 'only' 130% or so over the same period, going from $4.47 to the $10.28 we see today.

But after the jitters of the past few weeks, many investors might be getting spooked and tempted to take their profits off the table. So which ASX lithium shares are still worth holding today?

Well, one ASX broker has given its answer to that question.

A miner in a hardhat makes a sale on his tablet in the field.

Image source: Getty Images

Broker UBS names its favourite ASX lithium shares

As reported in the Australian Financial Review (AFR) today, ASX broker UBS is predicting a difficult time for lithium shares going forward.

UBS reckons that new lithium supply coming online from both China and Latin America could see the supply of the future-facing metal double between 2022 and 2025.

As anyone who's studied economics would know, increased supply usually leads to lower prices. And that's not good news for the lithium companies who sell this industrial metal.

But don't panic, not all is lost, according to UBS. The broker still maintains a buy rating on several ASX lithium shares. That's due to an expectation that "the recent collapse in lithium prices may have bottomed out".

So which lithium shares does the broker rate?

Well, it has maintained buy ratings on Allkem, Mineral Resources, and Liontown Resources. That's in addition to IGO Ltd (ASX: IGO) and Wesfarmers Ltd (ASX: WES).

Wesfarmers is not a pure-play lithium company. But the industrial and retailing conglomerate has increased its exposure to lithium in recent years.

Meanwhile, UBS has given Pilbara Minerals shares a neutral rating, in contrast to the shares named above.

So this might come as some comfort for ASX lithium investors today. But let's see what the next few months and years bring to this popular corner of the ASX.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Wesfarmers. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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