The electric vehicle market has been one of the hottest investing trends this year. Stocks like Tesla (TSLA) and NIO Inc (NIO) are up 389.8% and 588.1% this year, respectively. But these stocks might not be the best choice for investors looking to get into the electric vehicle market. Both stocks are priced too high as TESLA has a P/E of 788.57 and a Price to Sales Ratio of 15.18, and NIO has a Price to Sales ratio of 24.65. Compared to the S&P 500’s P/E of 34.3 and Price to Sales of 2.5, TSLA and BIO both look ridiculously overvalued.
Due to these high valuations, there has been a surge of new and old companies entering the market. From mainstream automakers such as Ford (F) and General Motors (GM) looking to add more electric vehicles (EV) to their fleet, to a host of new startups, like Workhorse Group (WKHS) and Lordstown Motors. Companies are coming out of the woodwork to get a piece of the pie. Many startups have gone public through Special Purpose Acquisition Companies (SPACs), while others are publicly traded, Chinese manufacturers.
Instead of betting on the cars themselves, I suggest considering stocks that make EV components and materials for batteries as a way to profit off the EV trend. Their stock prices are more reasonably valued, and the companies are just as poised to generate huge revenues from this soaring industry. Here are three companies set to profit from the electric vehicle revolution: Aptiv PLC (APTV), Cree, Inc (CREE), and Analog Devices (ADI).
Aptiv PLC (APTV)
APTV is the dominant player in the manufacture of electric vehicle architecture. It’s Signal and Power Solutions segment supplies components and systems that make up a vehicle’s electrical system backbone, including wiring assemblies and harnesses, connectors, electrical centers, and hybrid electrical systems.
APTV is poised to grow rapidly on the fast-growing electrification, connectivity, and autonomy trends in the automotive sector. One way the company has grown has been through investment in advanced technology as well as collaborations. The company recently entered into a joint venture with Hyundai called Motional to address autonomous driving. The joint venture is looking to have a production-ready autonomous driving platform for robotaxi providers and fleet operators by 2022.
In addition to collaborations, the company has turned to acquisitions to expand its market presence. Last year, its acquisition of gabocom enhanced its cable management portfolio and strengthened its position in the telecommunications market. In 2018, APTV acquired KUM and Winchester Interconnect to strengthen its Signal and Power Solutions segment.
The company is set for strong growth next year as sales are expected to grow 20.4%, and earnings are expected to soar 202.5%. The company’s valuation is also quite attractive with a P/E of 14.4 and an EV/EBITDA of 10.6. The stock is rated a “Strong Buy” in our POWR Ratings system with a grade of “A” in Trade Grade, Buy & Hold Grade, and Peer Grade. It also Holds a grade of “B” for Industry. Those are the four components that make up the POWR Ratings. The stock is ranked #3 in the Auto Parts industry.
Keep a close on APTV tomorrow, as the stock reports its latest quarterly results before the bell.
Cree, Inc (CREE)
CREE is the global leader in silicon carbide technology and supplies approximately 62% of the world’s material. Silicon carbide is a critical factor in driving inverter loss reduction. A cars’ inverters are a vital piece of an EV’s drivetrain and are essential to EV manufacturing. CREE supplies the most important component of the cars’ inverters, power electronics, using silicon carbide technology.
The use of silicon carbide-based power semiconductors will increase the range of electric vehicles and increase efficiency. CREE’s Wolfspeed 650V silicon carbide MOSFETs enable next-gen EV onboard charging, data centers, and other renewable systems with industry-leading power efficiency. The company recently announced it was selling its LED Products business to SMART Global Holdings, Inc. to focus on its Wolfspeed business.
CREE is also poised to benefit from another big trend this year, the 5G boom. The company’s gallium nitride radio-frequency (RF) devices are seeing increased adoption in communications infrastructure. This due to gallium nitride-based 5G systems being more compact, offering increased frequency bandwidth, and providing lower cost/bit/second for the operator.
The company just released results from the first quarter of the fiscal year 2021. It reported revenue of $216.6 million, which was an 11% drop year over year, but a 5% increase from the last quarter. The company targets revenue from continuing operations for the next quarter in the range of $118 million to $124 million. Sales are expected to grow by 24.7% next year. The stock is rated a “Buy” in our POWR Ratings system with a grade of “A” for Trade Grade and Industry Rank and a “B” for Buy & Hold Grade and Peer Grade.
Analog Devices (ADI)
ADI is a leading analog, mixed-signal, and digital signal processing chipmaker. The company has a huge market share in converter chips, which are used to translate analog signals to digital and vice versa. More than half of its chip sales are made to industrial and automotive end markets. Its battery management solutions are designed to improve an EV’s range, energy efficiency, and charging speed.
The company’s advanced sensors and isolators enable inverters to reduce size and weight, which are important components in electric vehicles’ design. Last month, ADI announced the industry’s first wireless battery management system (wBMS) available for production electric vehicles. It will debut on GM’s production vehicles, which are powered by Ultium batteries.
ADI plans to acquire Maxim Integrated Products (MXIM). This acquisition should strengthen its presence in the chip industry and drive growth across several markets. In addition, MXIM’s chip offerings should provide ADI access to autonomous driving and 5G, providing the company additional growth catalysts in two rising trends.
The firm is expected to see solid growth next year, with revenues expected to grow 8.2% and earnings expected to increase by 15.9%. ADI also has a healthy profit margin of 20.1%. The stock is rated a “Strong Buy” in our POWR Ratings system. The company has straight “A” s in every POWR grade, including its Trade Grade, Buy & Hold Grade, Peer Grade, Industry Rank, and its overall rating. ADI is ranked #4 out of 86 stocks in the Semiconductor & Wireless Chip industry.
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TSLA shares rose $0.18 (+0.04%) in after-hours trading Wednesday. Year-to-date, TSLA has gained 385.29%, versus a 2.95% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. Prior to StockNews, David spent eleven years as a Consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers. More...
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