After a massive drop this year, lithium prices seem to be picking up again.
So which is the best ASX lithium stock to take advantage of this revival?
While there are many producers and explorers on the bourse, the team at Market Matters has one particular company it is "long and bullish" on.
"Pilbara Minerals Ltd (ASX: PLS) has been MM's recent stock of choice to take advantage of the lithium sector's strong recovery from its Q1 pullback," the team said in a memo to subscribers.
"We view Pilbara as the lower-risk exposure to this risky/volatile sector."
'Growing earning and dividends'
The analysts believe "growing production should underpin growing earnings and dividends".
"At their last update, they reconfirmed FY23 production guidance of 600 to 620kt, with margins for this early producer remaining solid," the memo read.
"Their cash balance rose $457 million in the quarter, pushing their bank balance up to a net cash position of ~$2.7 billion, which will support fully franked dividends."
The Pilbara share price has climbed more than 31% year to date, to close Wednesday at $4.69.
The Market Matters team is expecting the stock to head upwards from here.
"We can see Pilbara consolidating in the $4.50 to $5 area following impressive recent gains with the risk/reward looking attractive ~$4.50," read the memo.
"Ultimately we're targeting a test of $6."
Takeover target?
Earlier this month, Morgan Stanley (NYSE: MS), Morgans and Macquarie Group Ltd (ASX: MQG) were all reported to be bullish on Pilbara shares.
"While lithium prices have been softening, they are still trading at a level that means the miner is generating significant free cash flow," reported The Motley Fool's James Mickleboro.
"Combined with its production expansion plans, this bodes well for its earnings and dividends in the future."
Some have even suggested the Pilbara share price could benefit from a massive corporate catalyst.
"Morgans, for example, has suggested that the company could be an attractive takeover target for a miner wanting immediate lithium exposure," said Mickleboro.
The Market Matters team did warn potential buyers that lithium and mining stocks can see massive fluctuations in price.
"In under 18 months, Pilbara has already corrected 49%, 37% and 36%," read its memo.
"Hence subscribers shouldn't be surprised if we hold this position [for] a relatively short time. After all, history tells us we should get another good risk/reward entry opportunity."
