Lithium Stock That's All Charged Up

02/28/2012 9:00 am EST


Joe Donohue

Co-Founder, Desert Shores Capital LP

Rapid global growth and a bullish chart pattern are two compelling reasons to go long lithium-ion producer Rockwood Holdings, Inc., writes Joe Donohue of Upside Trader.

Rockwood Holdings, Inc. (ROC) develops, manufactures, and markets specialty chemicals and materials for industrial and commercial applications primarily in Germany, the United States, and Europe. ROC is also a big player in lithium. Roughly 90% of laptops and 60% of mobile phones are powered by lithium-ion batteries.

New plants in North Carolina and Germany are already underway, and Rockwood has also unveiled plans for a new plant in Chile to double lithium production. In the past year, Rockwood's revenue and net income have grown at a compounded rate of 22.4% and a staggering 225.7% (a good part of which was due to earnings from discontinued operations), respectively. Rockwood's shares have gained a phenomenal 33% since the beginning of January.

Back in July, ROC tagged all-time highs at around $62. It tagged lows in the $30’s when the market sold off, but has based and now finds itself in a constructive technical pattern.

The daily pattern shows that the stock has been coiling for about a month. Volume has been good over this same period, which indicates accumulation.

ROC happens to be about a 10% holding in Global X Lithium (LIT), an ETF which gives you exposure to most of the big lithium plays.

The stock currently trades at $54.40, but had a spike breakout just a few days ago where it traded to $57 and has since pulled back.

Click to Enlarge

The stock is just above the rising 20-day moving average and is sitting right at the ten-day simple moving average. I’m long with a target around $60.

By Joe Donohue of Upside Trader

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