The Art of EV Investing: 3 Stocks to Average Down for Massive Gains
These innovation-driven EV companies will survive the headwinds and emerge stronger in the coming quarters
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I largely tend to average up on my investments as the business conviction grows. I am not a big fan of averaging down. However, there are scenarios where averaging down makes sense. A good example is with electric vehicles, and EV stocks that are worth averaging down in the coming months.
Most EV stocks surged higher after rate cuts were initiated during the pandemic-driven recession. However, investors realized that EV adoption has been slower than expected. The industry also faces headwinds of slower GDP growth and intense competition. This translated into some of the best EV stocks trading at attractive valuations.
I would not average down on EV stocks like Lucid (NASDAQ:LCID) or Nio (NYSE:NIO). There might be trading opportunities in these ideas. But these are not the companies to buy and hold. On the other hand, there are few quality EV stocks that are worth averaging down for massive gains in the next five years. In my view, these EV stocks represent companies that are positioned to survive and emerge stronger from the current headwinds.
Let’s discuss the reasons to be bullish on these EV stocks.
Tesla (TSLA)
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TTesla (NASDAQ:TSLA) was listed in June 2010 at a split-adjusted price of $1.27. The electric vehicle company created massive value for shareholders. In the last 14 years, there have been ample instances of analysts writing off Tesla. However, the company continued to create value backed by innovation. I believe that Tesla will remain a value creator in the long term. With the stock in a downtrend, it’s a good time to accumulate.
Tesla has strong fundamentals and has been reporting healthy cash flows. Therefore, there is ample flexibility to invest in innovation and potentially new factories in emerging markets.
Nvidia (NASDAQ:NVDA) CEO Jensen Huang believes that Tesla is “far ahead in self-driving cars.” Robotaxis is one area where the company can make inroads and create significant value.
Tesla is also considering an “unboxed manufacturing process” that can cut production costs in half. If this can be achieved, Tesla will be closer to launching its low-price car for emerging markets. Therefore, there are ample reasons to be bullish and I expect a strong reversal for TSLA stock.
Li Auto (LI)
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Among the emerging names from the industry, Li Auto (NASDAQ:LI) is my favorite. After a meaningful correction for year-to-date, LI stock trades at an attractive forward price-to-earnings ratio of 16.6x. This seems like a golden opportunity to accumulate multi-bagger returns.
I like that Li Auto has resisted being too aggressive in terms of expansion. The EV maker remains focused on the Chinese market and continues to expand its retail network. There is a big addressable market within China, and Li Auto’s laser-sharp focus has delivered results.
It’s also worth noting that Li has strong fundamentals. As of the first quarter, the company reported a cash buffer of $13.7 billion. This provides ample flexibility to invest in product innovation and retail expansion.
Li Auto has also been active on the new product launch front. In March, Li Mega was launched and is likely to have a positive impact on delivery growth. Further, in April, the company commenced deliveries of Li L6 with the latest generation of lithium iron phosphate batteries. Therefore, with continued positive developments and a healthy vehicle margin, the outlook is bullish for LI stock.
Panasonic Holdings (PCRFF)
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Let’s also discuss a deeply undervalued EV battery stock that’s a potential multi-bagger. Panasonic Holdings (OTCMKTS:PCRFF) stock corrected by 25% in the last 12 months. At a forward P/E of 7.2x, the valuation gap is clear and PCRFF stock offers a healthy dividend yield of 2.7%. Once sentiments reverse for EV stocks, PCRFF is likely to witness a sharp reversal rally.
In the EV battery space, Panasonic has an innovation edge. Toyota (NYSE:TM) and Panasonic control over 1,300 patents in the solid-state battery space. In December, the battery maker partnered with Sila Nanotechnologies “to purchase next-generation nano-composite silicon anode material for EV lithium-ion batteries.” Silicon-based EV batteries are a part of the company’s target to achieve a 25% increase in battery energy density.
Panasonic is targeting to quadruple its EV battery capacity to 200GWh by 2031. This will translate into a sustained upside in revenue. At the same time, with advanced batteries, there is headroom for EBITDA margin expansion.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
