The global economy faces a vexing set of challenges over the next year with stubbornly high inflation and rising recession risk. So far, corporate earnings and employment have remained strong, while this is certainly positive for the economy, it’s less so for the stock market which must contend with a hawkish Fed.
Amid this mess, investors should focus on growth themes that are going to persist regardless of economic or monetary factors. There is no better example of that than electric vehicles (EV). Last year, 6.6 million EVs were sold globally, and this figure is expected to reach 26.8 million annual sales by the end of the decade. The major drivers are government policies supporting the adoption of EVs due to lower pollution, lower cost, and increased efficiencies.
Investors should take a diversified approach to invest in EVs. They should identify leading companies, key players in the new supply chain, and producers of key commodities. Here are 3 to watch:
BYD Company Limited (BYDDY)
Based in Shenzhen, China, BYDDY is developing, manufacturing, and selling automobiles and related products worldwide. It operates through three segments: Rechargeable Battery and Photovoltaic Products; Mobile Handset Components and Assembly Service; and Automobiles and Related Products.
It can be quite challenging and confusing for investors to determine which EV maker they should invest in given the array of startups, upstarts, and legacy players transitioning into the space.
One issue with the newer players is that many are overvalued and are likely going to have to continue raising capital in order to scale production which is certainly tougher in a higher-rate environment. It’s also likely that they are going to face a much tougher operating and selling environment as companies will be willing to give discounts in order to win market share.
However, legacy companies are not necessarily guaranteed to succeed either. The track record of companies entering new niches is not promising even with massive resources. Think of how Facebook (Nasdaq: META) can’t compete with Tiktok or how Google (Nasdaq: GOOGL) failed to create a viable alternative social media platform when competing with Facebook or how Microsoft (Nasdaq: MSFT) similarly failed at search when taking on Google.
Therefore, investors should consider a stock like BYDDY which has aspects of an upstart and a legacy company given that its been operating for more than a decade and has a significant market share in China. However, the company has a very favorable valuation and is also backed by well-known investors like Charlie Munger.
BYDDY’s POWR Ratings reflect its strong prospects. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting. The stock has a B which translates to a Buy rating. B-rated stocks have posted an average annual performance of 21.1% which is better than the S&P 500’s average gain of 8.0%. Click here to access the complete POWR Ratings for BYDDY.
NXP Semiconductors N.V. (NXPI)
NXPI is a leading supplier of high-performance mixed-signal products. The company has a significant market share in the automotive market, where it supplies microcontrollers and analog chips into automotive clusters, powertrains, infotainment systems, and radars. NXPI also serves industrial and Internet of Things (IoT), mobile, and communications infrastructure.
NXPI gives investors exposure to the EV industry due to its large portfolio of products and solutions for manufacturers. Some of these include battery management and powertrain parts plus advanced driver assist hardware that is increasingly in demand in 21st-century vehicles. Unlike most chip companies, NXPI is expected to grow revenues by 11% and earnings by 25% over the next year.
In terms of the POWR Ratings, NXPI is a standout with an overall B rating which translates to a Buy. The stock also has a B for Quality due to its strong balance sheet, leading position in many product categories that are essential for EV makers, and high marks from analysts. Click here to see more of NXPI’s POWR Ratings.
Sociedad Quimica Y Minera (SQM)
SQM is a major producer of lithium and accounts for 13% of global production. It also produces a number of other commodities including iodine and potassium nitrate. Lithium accounts for 26% of its revenue and the majority of revenue growth.
One way to see the underlying strength in lithium is that stocks in the sector are outperforming on multiple timeframes. Currently, they are hovering just beneath their all-time highs, while most stocks in the market are off by more than 25% from their highs.
This is certainly true in SQM’s case as the stock is up 121% YTD. Despite these gains, the stock remains quite cheap with a forward P/E of 7.1 and a 4.1% dividend yield. It also has more than $3 billion in cash on the books.
What makes them “MUST OWN“?
All 9 picks have strong fundamentals and are experiencing tremendous momentum. They also contain a winning blend of growth and value attributes that generates a catalyst for serious outperformance.
Even more important, each recently earned a Buy rating from our coveted POWR Ratings system where the A rated stocks have gained +31.10% a year.
Click below now to see these top performing stocks with exciting growth prospects:
NXPI shares were trading at $169.83 per share on Monday morning, down $0.11 (-0.06%). Year-to-date, NXPI has declined -24.30%, versus a -15.32% rise in the benchmark S&P 500 index during the same period.
About the Author: Jaimini Desai
Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles. More...
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