Hot Picks: Lithium rebound and chip demand lift materials outlook

A rebound in lithium prices, stabilizing nutrient markets and rising demand for advanced chip materials are supporting a stronger outlook in the basic materials sector. Analysts say tighter supply conditions and improving free cash flow trends are helping producers regain momentum.

BNN Bloomberg spoke with Seth Goldstein, senior equity analyst at Morningstar Research, who outlined where he sees upside in the sector, including companies leveraged to rising lithium demand, firmer fertilizer pricing and expanding semiconductor production.

Key Takeaways

• Lithium prices are recovering, improving profitability for low-cost producers.
• Supply discipline and cost reductions are lifting free cash flow across the sector.
• Fertilizer markets are stabilizing as potash and nitrogen prices firm.
• Divestments and portfolio clean-ups are helping nutrient producers refocus on higher-return assets.
• Semiconductor growth is increasing demand for advanced materials used in chips and circuit boards.

Read the full transcript below:

ANDREW: On Hot Picks today we are talking materials. Our guest has Albemarle as a top pick. He says this giant lithium producer should benefit from rising prices for the commodity. We’re joined by Seth Goldstein, senior equity analyst at Morningstar Research. Seth, thanks very much for coming on the show. And we have seen something of a bounce lately in these lithium names, and you see more upside for Albemarle?

SETH: I do. I value Albemarle at US$200 a share, so we still think there’s a lot of upside, despite the fact the stock has seen a pretty large rally from its recent 52-week low. The rally has been driven by rising lithium prices. Since about the middle of the year, since early July, we’ve seen lithium spot prices in Asia — the largest battery market — start to rise. And while we still think they have much further to go, the rise has been enough for Albemarle to start improving its results.

So when they released their third-quarter earnings, we saw the company did see lower lithium prices, but they had lower unit production costs, which drove profit growth, and they generated positive free cash flow. That is a sign Albemarle is a low-cost producer. We have a narrow-moat rating on the name because of its low-cost lithium assets, and we think they can get through the bottom. As prices continue to rise, they’ll be one of the largest beneficiaries as we see lithium demand growing faster than supply over the next few years.

ANDREW: Partly because of electric vehicles and, I guess, large-scale energy storage too.

SETH: It is. We’re seeing global EV sales continue to grow. And even though we expect we’ll see U.S. EV sales fall next year as the tax credit expired in September, we do think globally we’ll continue to see growth in key markets such as China and Europe. For lithium demand, it just matters that EV sales are growing globally.

Then we’re seeing large utility-scale energy storage batteries. These are being built to accompany solar and renewable projects. They’re also being built in data centres to ensure grid reliability in new data centres. Here is a new case: this is the fastest-growing demand source for lithium. And as we’ve seen prices fall over the last few years, there have been a lot of supply cuts in response. Now the market’s going to move into balance due to strong demand growth.

ANDREW: Your next idea, Nutrien. They are going through a pretty aggressive restructuring right now, selling off some important assets. Is that part of your bull case on the stock?

SETH: It is. We value Nutrien at US$70 for the U.S. shares, so we see good upside to current levels. We think management is running the business very well. We like the focus on free cash flow generation. We like the move to divest retail assets and smaller fertilizer mines in South America, where they tried to expand in that market to take advantage of demand growth from farmers, but they realized the returns weren’t quite there. It wasn’t as good an investment as their expansions in their North American assets, both on the retail and fertilizer side.

We credit management with being willing to walk away, divest assets and put the cash flow either to share repurchases or to better investment projects in North America. The company is underway divesting some South American assets. They’re also reviewing their phosphate business, which has been one of the smallest businesses for Nutrien since the company was created years ago. But we think this business is less profitable, likely generates less free cash flow, and if they sell the business, they could use the proceeds elsewhere. We like the move to at least review the future of the business.

ANDREW: It’s interesting — The Globe and Mail reports today Nutrien has selected a port in Washington state for a new export terminal worth up to $1 billion. That would be a blow to our government, which is trying to get infrastructure built in this country. We’re trying to check whether Nutrien has actually done that or made an announcement.

Finally, Qnity — and I hope I’ve said that right; I never can remember the pronunciation — but they make materials for the semiconductor industry.

SETH: That’s right. Qnity — and you did pronounce it right — was recently spun off from DuPont. It’s DuPont’s semiconductor and electronics business. Two-thirds of what they make are the chemicals and materials you need to make semiconductors, and the rest is the chemicals and materials needed for printed circuit boards to ensure things like our phones can connect to the internet or, in a data centre, that the devices throughout the centre can have high connectivity so the data centre functions well.

These are crucial materials as we see globally more data centres being built, phones needing increased connectivity over time, and increasing need for more semiconductors and more powerful semiconductors. We value Qnity at about US$100 a share, so we see good upside to the name, and we think they are one of the leaders in these advanced materials and chemistries needed to support this demand growth — to support smaller, more powerful chips, which require better chemicals and better materials over time. We think this is good long-term growth and a good way to invest in rising semiconductor demand and increased connectivity in the years ahead.

ANDREW: It is amazing, the level of technology the chip people are reaching right now — the tiny scales they’re operating at.

SETH: It really is. TSMC is going to come out with transistors that are just two nanometres large, which continues to get smaller and more powerful over time. That makes our phones work better and allows us to do more. As consumers, we ultimately get the benefit — even if we’ll be paying up for our future phones. But for a company like Qnity, they are working hand-in-hand with companies like TSMC and Intel to ensure they can produce these chips and do so at good yields.

ANDREW: A nanometre being one-billionth of a metre. It’s mind-blowing what they’re doing. Seth, we’d better leave it there. Seth Goldstein, senior equity analyst at Morningstar Research.

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This BNN Bloomberg summary and transcript of the Nov. 20, 2025 interview with Seth Goldstein are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.