Should I buy ASX 200 lithium shares now or not?

The lithium industry has started 2023 strongly. Since the start of the year, a number of ASX 200 lithium shares have generated stellar returns for investors.

This has been driven by optimism that lithium prices will remain higher for longer. This would be good news for miners and those on the cusp of pulling the battery-making ingredient out of the ground.

Should I buy ASX 200 lithium shares?

Well, firstly, I have had exposure to the lithium industry for a few years through my investment in what has become Allkem Ltd (ASX: AKE).

So, the question becomes, would I buy ASX 200 lithium shares today if I didn’t already own Allkem shares?

This is a difficult question to answer. While I have zero plans to sell my Allkem shares, I’m not certain that I would be jumping in right now.

That’s because when I make an investment, I like the risk/reward to be compelling.

This is something that I thought I saw in Domino’s Pizza Enterprises Ltd (ASX: DMP) shares back in November. Since that purchase, the Domino’s share price is up over 33%.

However, with the Allkem share price up approximately 20% since the start of the year, I don’t personally believe the risk/reward is overly compelling given the uncertainty over future lithium prices. And that goes for all the ASX 200 lithium shares.

But given the volatility that occurs in the lithium industry periodically, investors may not have to wait long until they get an opportunity to invest at a more favourable level. In light of this, I would sit tight and wait for a pullback before considering an investment.

Brokers remain positive

It is worth noting that some brokers aren’t holding back for a better price.

For example, Macquarie has an outperform rating and $7.50 price target on Pilbara Minerals Ltd (ASX: PLS) shares, Goldman Sachs has a buy rating and $15.50 price target on Allkem’s shares, and UBS has a buy rating and $112.00 price target on Mineral Resources Ltd (ASX: MIN) shares.

These price targets imply a minimum of 18% upside for each of these ASX 200 lithium shares.

The post Should I buy ASX 200 lithium shares now or not? appeared first on The Motley Fool Australia.

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More reading

• Jeremy Grantham just warned shares could crash 50%, but did he also suggest lithium stocks may have “a substantial advantage” over the long-term?
• The Pilbara Minerals share price has rocketed! Have I left it too late to buy?
• These were the best performing ASX 200 shares in January
• Why was the Lynas share price hit so hard on Tuesday?
• Here are the 3 most heavily traded ASX 200 shares on Tuesday

Motley Fool contributor James Mickleboro has positions in Allkem and Domino’s Pizza Enterprises. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Domino’s Pizza Enterprises. The Motley Fool Australia has recommended Domino’s Pizza Enterprises. 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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