Lithium shares have had another turbulent year to date, with the analyst team at Morgans noting that ASX lithium company share prices ran up as prices peaked in May, and have subsequently fallen back.
ASX lithium shares in focus
Three major broking houses in Morgans, UBS, and Macquarie have issued research notes on the lithium sector this week, with UBS saying they expect Australian lithium companies to generate strong cash flow over the June quarter, "as stronger realised lithium prices drive robust margins''.
They added:
With lithium prices recovering sharply since mid-CY25, producers have moved quickly to revisit and accelerate growth initiatives, although we believe the market is underestimating the capital required to deliver the next expansion phase. Concerns build around rising battery inventories, weak China NEV sales, an accelerating / uncertain supply response, though we continue to believe the market fundamentals remain strong and remain overweight lithium.
Macquarie notes that there remains limited visibility of the expansion of the major Chinese producer Jianxiawo and, therefore, its effect on the market.
Macquarie said they see significant uncertainty around the supply and demand outlook for CY27.
They added:
While future supply additions are highly visible, we believe the market may be underestimating project delays, commissioning risks and ramp-up challenges.
Which ASX lithium shares do the experts like?
Macquarie's top pick in the sector is IGO Ltd (ASX: IGO), with a price target of $10.50.
Other companies it had assigned an outperform rating to include PLS Group Ltd (ASX: PLS), PMET Ltd (ASX: PMT), Elevra Lithium Ltd (ASX: ELV), Liontown Resources Ltd (ASX: LTR), Wildcat Resources Ltd (ASX: WC8), and Global Lithium Ltd (ASX: GL1).
In contrast, Morgans has a hold recommendation on PLS shares, preferring Liontown Resources, which it has an accumulate rating on and a price target of $1.70 on, compared to $1.36 currently.
Morgans also has an accumulate rating on Mineral Resources, with a $68 price target compared to $56.65 currently.
UBS also has a neutral rating on PLS shares, and buys on IGO, Liontown, PMET, and Elevra.
Morgans noted that the recent pullback in lithium prices was likely a short-term correction.
They added:
We see this recent sell-off as the market pricing in a step-change in near-term supply, not an expectation that the commodity is going to experience a severe sell off and enter another downcycle. Rather, we think investors have concluded that the probability of another leg is now considerably lower, given the CATL and Zimbabwe supply catalysts, plus incremental Australian supply coming back online. In our view, the equity rally through 1Q/2Q26 pushed several names ahead of what we'd consider fair value on a through-cycle price deck, and this correction is best read as a re-rating back toward more appropriate valuations, not a loss of confidence in sector fundamentals.
The post What are the top picks in the ASX lithium sector right now? appeared first on The Motley Fool Australia.
Motley Fool contributor Cameron England has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Macquarie Group. The Motley Fool Australia has recommended Macquarie Group. 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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