7 Stocks That Will Drive the EV Revolution
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Here is a video to help you think differently around the revolution in electric vehicles and the EV stocks you must secure ahead.
New research by Bloomberg estimates sales of 41 million electric vehicles by 2040, more than a third of all light-duty vehicle sales. Just 3.1 million electric cars were sold last year, about 4.7% of new passenger cars, so that estimate represents growth of 1,300% in just two decades.
The EV revolution is here but investors are already loving those car makers. Shares of Tesla have surged 71% in the last year and trade for a price of 340-times its earnings. Even the traditional car makers are getting expensive on those EV hopes. Shares of Ford are up 120% with GM trailing but still up 48% in a year.
The car makers are too obvious. They’re played out. The real return on that EV story over the next ten or twenty years will come from finding the other themes to drive that revolution. The companies nobody is watching, and I’ve found seven EV stocks you’re going to want to watch!
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The first theme I think is about to head into overdrive for EV stocks is charging stations. Being able to charge electric vehicles has really been THE hurdle to growth in car sales…a kind of chicken or the egg problem.
There are just over 40,000 public charging stations in the United States with the majority on the coasts. That compares to over 150,000 traditional gas stations. It leaves a large part of the population wondering how easy it’s going to be to recharge, especially on long trips.
People aren’t going to buy electric cars if they’re worried about being able to recharge them…and the charging companies don’t want to build out the stations if there aren’t cars on the road.
In fact, in a recent study of former electric vehicle owners, nearly one in three drivers reported being slightly or very dissatisfied with the convenience of charging and even among those that continue to drive an electric vehicle, 15% are dissatisfied with availability of charging stations.
But we’ve started working towards a solution. More than $7.5 billion of the recent $1.2 trillion infrastructure bill signed in November is earmarked to build 500,000 charging stations by 2030. Companies applying for funding under the bill have to build charging stations compatible with all EV cars…helping to drive that supply of public charging.
What I think happens, is you start hearing the EV charging stocks talking about funding from the bill. They’ll start reporting how much funding they get to build out these stations and we could see revenue jump over the next several years.
Arguably the leader in charging is ChargePoint Holdings, ticker CHPT, with 118,000 ports and strong international diversification in Canada and Europe. I really like the international growth here, something you don’t find in some of the other companies.
ChargePoint uses a multi-stream income model around hardware, software and services in both fleet and residential business. The company booked 57% growth in revenue to 2020 and 61% in the second quarter of this year so it looks like sales are rebounding after the pandemic.
Shares are down 42% over the last year but still trading for 46-times revenue. I think it’s a great opportunity on a company that could see sales growth continue in the high double-digits for a decade or more.
Blink Charging, ticker BLNK, is smaller at just $1.4 billion market cap but a strong presence in the eastern half of the country and 17,000 stations overall.
The company has a great line of products targeting different EV and customer needs and several in development. Growth is even faster here with 72% sales growth this year and 126% even during the pandemic year. The weakness in charging service revenue worries me a little but it’s done really well on product sales so I think that’s where this company is focused.
Shares are more expensive here at 80-times on a price-to-sales basis so you’re paying for that faster growth but it’s got a good balance sheet with $186 million in cash and only $2.6 million in debt. The stock is up 24% over the last year but volatile around the selloff in growth stocks.
The smallest of the group, EV Go, ticker EVGO, is just a $768 million company so we’re into penny stock territory with this one. EV GO is a pure-play on the fast-charging DC demand with 800 stations and a new contract with GM that would add almost 3,000 sites. That DC charging segment is where a lot of the money in the infrastructure bill is going so you could see EV GO benefit most on the funding.
The company is expecting to grow revenue to $21 million this year and add up to 320 new DC stalls. That’s up from $18 million in 2019 and just $14 million last year, so the pandemic hit this one harder than the others.
It puts the stock at 36-times on a price-to-sales basis, a little cheaper than ChargePoint though growth is slower. Shares are flat over the last year with spikes up to $24 a share and as low as $7 each.
This second theme and next four stocks is where we could see the most surprise upside, a huge deficit in supply of copper and other metals.
On those 2040 projections, the International Energy Agency estimates supplies of lithium, nickel and other minerals will need to jump 30-fold to meet demand. And while most of the headlines are around the battery inputs, we could see a surge in copper demand. The average vehicle on the streets today holds just 51 pounds of copper, less than a third the amount needed for a battery electric vehicle and just two-thirds the need for a hybrid vehicle.
This chart shows current and planned production for three key elements in electric vehicles. Dark blue is current operating production with light blue including planned projects. On that red line, the increased demand from EV, we could be in a supply deficit by 2024 in copper and even earlier in some others.
The price of copper has come off highs set in May but could see real momentum higher over the next couple of years and many copper miners are already operating at strong profits.
Pair this looming deficit with the idea of higher inflation and you’ve got a strong rationale for copper and other mining stocks.
First here is the largest but also one of my favorites for its U.S. assets, Freeport McMoRan, ticker FCX.
The risk in a lot of copper and mining stocks is they are heavily weighted to production in regions like Latin America, Africa and Asia. That can make for a lot of volatility around political and civil unrest and in the worst cases, loss of fields to expropriation.
With more than a third of its business in U.S. fields, you get a little more stability here with FCX though it still has most of its business in Chile, Peru and Indonesia. That said, the company is expecting strong growth of 19% this year followed by 16% next year in copper sales. FCX investors also get a gold kicker with more than 1.3 million ounces in gold sales annually.
And those estimates are on current copper price forecasts so if we get a long-term bump in prices, you could see this one take off. For every $0.10 higher in the price of copper, FCX adds another $330 million to cash flow.
Shares are up 58% this year on that rise in copper prices so this one is a little expensive at almost 15-times on a PE ratio. In fact, the stock price is up so fast that the dividend yield is now just 0.81% but I’d expect the dividend to grow pretty quickly over the next few years.
Quite a bit smaller here is Teck Resources, ticker TECK, at a $14.7 billion market cap. Teck isn’t quite the pure-play in copper with about a third of its revenue from zinc and another third from steel-making coal but it’s got one of the fastest production growth rates I’ve seen. Management expects to double its copper production over the next two years while most miners are booking eleven- to 20% production growth.
Teck also has that geographically diversified exposure with stable production in Canada along with other assets in Mexico, Peru and Chile. It’s also seen the shares jump this year, up 54% and trading for an even higher 20-times price-to-earnings but that faster revenue growth could make this one the better investment.
One more individual stock in the theme and then I’ll share my favorite way to play the potential mining boom, Southern Copper, ticker SCCO, is another larger miner at a $46 billion market cap.
Southern Copper has the highest copper reserves in the industry at over 67 million metric tons and is the world’s fifth largest producer. In fact, on those reserves, the company has more than 50 years of production left in its mines.
It’s a more focused producer with assets in Mexico and Peru and more of a pure-play on copper with 84% of its revenue from the metal.
Shares are flat over the last year so investors are still getting a 6.8% dividend yield and the stock is relatively cheaper at 14.7-times on that price-to-earnings basis.
One thing I’m not wild about on Southern Copper is the ownership structure with GrupoMexico owning 89% of the company through its Americas Mining Corporation and investors owning just 11% of the company.
It’s still a solid mining stock but I worry that investors just don’t own enough of the company to make sure their interests are being represented.
One of my favorite ways to invest in the trend is through an exchange traded fund like the Global X Copper Miners ETF, ticker COPX.
The fund gives you broad exposure to copper miners, holding 39 stocks and has produced a 17% annualized return over the last five years. Having those different companies and stocks gives you geographic diversification with Canada, Australia and the US accounting for just over half of the portfolio. And what I really like about this idea is you get access to stocks that aren’t traded just in the US markets, so copper miners listed on other exchanges that US investors wouldn’t otherwise be able to buy.
The dividend on the copper ETF is 1.3% so not as high as Southern but still a solid payout and because it’s an investment in 39 companies, this one should be less risk than investing in an individual stock.
Don’t forget to get your five free stocks from MooMoo with the link in the video description. It’s a solid app for stock investors with some powerful analytical tools like their TradingView analysis.
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