In recent months, much has been made of electric-vehicle (EV) stocks, and some of them have been on fire. But there’s little doubt that autonomous vehicles (AVs) will be tremendously more profitable than non-autonomous EVs. As a result, I believe that longer-term investors should put much more of their money into autonomous vehicle stocks than EV stocks.
With AVs, companies will be able to run taxi and delivery services while cutting out what is by far the biggest cost of any transportation service: human drivers. Consequently, the leaders of the AV sector should have huge profit margins and report very impressive earnings-per-share numbers. By contrast, the runaway leader of the EV sector – Tesla (NASDAQ:TSLA) – is currently only profitable by virtue of clean-energy credits that it sells to competitors.
Professor Mark Levine and Assistant Professor Libbi Levine Segev of the University of Denver’s Daniels College of Business expect widespread usage of AVs. They recently said, “Amazon, busses, delivery companies, farming, and many other enterprises and fields are and will continue to employ [AVs], thus reducing costs and gaining greater efficiency.“
Here are three autonomous vehicle stocks that, over the next one to two years, should generate gigantic returns:
Autonomous Vehicle Stocks: Aptiv (APTV)
Since it develops technology for both AVs and EVs, and makes AVs, Aptiv is a great play on both, and will benefit greatly no matter which automaker comes out on top.
Additionally, the company has signed multiple partnerships with major companies which validate its AV technology. One is the large South Korean automaker, Hyundai. Together with Hyundai and ride-sharing startup Via, Aptiv intends “to launch a shared robotaxi service for the public in a U.S. city in the first half of 2021,” TechCrunch recently reported.
And Aptiv already has a great deal of experience in operating a robotaxi service. As of last February, the auto-parts maker’s AVs, in the framework of a partnership with Lyft (NASDAQ:LYFT), had completed “100,000 driverless rides.” Impressively, as of that time, 98% of the passengers had given the service five stars. The service took passengers to “over 3,400 destinations in the Las Vegas area.”
Another big positive for APTV stock is the company’s recently reported third-quarter results. Its top and bottom lines, as well as its 2020 guidance, came in well above analysts’ average estimates. Further, Aptiv “generated $559 million of cash from operations in Q3.” Analysts, on average, expect its earnings per share to nearly triple in 2021.
APTV stock is trading for 25.5 times the mean 2021 EPS estimate. Considering the company’s leadership position and tremendous potential, that is quite a bargain.
Lidar is a key technology used to enable autonomous driving. According to Mizuho, Lidar generated $1.5 billion of revenue last year and that will jump to roughly $3.6 billion within five years.
And within the Lidar sector, as I pointed out in a prior column, Velodyne is a large, rapidly growing player. At the beginning of this year, it had three major deals. As of Aug. 1, it had signed 18 major contracts.
In 2020, Velodyne – whose Lidar is also used in rapidly proliferating advanced driver-assistance systems (ADAS) – is expected to generate $100 million of revenue. Its CEO expects its top line to jump to $680 million in four years. Additionally, Velodyne anticipates that it will generate a profit in 2022.
Meanwhile, Ford (NYSE:F) took a 7.6% stake in VLDR stock. Chinese internet search giant Baidu (NASDAQ:BIDU), which is making a big push in autonomous driving, also signed a three-year deal with the LIDAR developer. Those big deals validate Velodyne’s technology.
With VLDR stock trading at a market capitalization of just over $2 billion, shares look poised for a big surge as ADAS and then AVs proliferate.
General Motors (GM)
GM recently achieved three milestones which indicate that it’s a true leader in the AV race.
First, the U.S. automaker’s Super Cruise automatic-driving technology, “in a hands-free test” by Consumer Reports, easily beat all competing systems, including Tesla’s Autopilot.
And earlier this month, GM’s Cruise subsidiary said it would start testing AVs without drivers or passengers in San Francisco by Dec. 31. It has received a permit from California for those tests.
And lastly, the company announced on Oct. 21 that it would seek a federal waiver to utilize vehicles that do not have any “steering wheels or pedals,” Reuters reported. The statement suggests GM is on track to deploy its AVs, which lack steering wheels and pedals, at the end of next year or the beginning of 2022.
Meanwhile, as a bonus, a Wedbush analyst recently made upbeat comments about GM’s EVs. GM stock has jumped in the last few months, partly due to increased optimism about its EVs. I’ve been bullish on the company’s EVs for months.
Trading at a forward price-earnings ratio of just 7.5, GM stock is quite cheap.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, Plug Power, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.