An overheated EV market is ushering in a cadre of new stocks which investors may want to steer clear of in the near term. Although the sector is red hot, plenty of these companies could leave investors feeling like crash test dummies. Want to avoid that fate? With that in mind, we will look at three EV stocks to buy that will keep you buckled in.
Although novel coronavirus vaccine plays like Pfizer (NYSE:PFE) and AstraZeneca (NASDAQ:AZN) have been soaring, nowhere has the market action been hotter than in EV stocks. To be fair, the price action doesn’t rival the dot-com bubble or what happened in cannabis stocks and cryptocurrencies in the last couple years.
Nevertheless, this month’s surge in momentum has the earmarks of a car wreck in the making for portfolios overly exposed to this area within the broader alternative energy market.
Blame the over-the-top price action on what you will. President-elect Joe Biden is a great place to start. But that doesn’t matter right now. The bottom line is that all stocks correct. And in those more bearish cycles where a decline of 30% is common after a big run up, largely unproven EV stocks pose an even greater risk.
In the following, let’s look at three leading EV stocks, their price charts and how to park capital into each more smartly.
EV Stocks to Buy : Tesla (TSLA)
The first of our EV stocks to buy is Tesla. We’re starting off with training wheels in TSLA. Aside from the confidence which comes from buying into the EV market leader, the run-up in shares this month is also much less problematic. Not that 30% is anything to sneeze at, but the rally hasn’t been linear like most of its much smaller peer group.
Technically, Tesla has staged two recent breakouts. The first was a pattern mid-pivot entry. A second classic purchase was available as shares cleared a high-level double-bottom base. The latter pattern buy has produced gains of around 10%. It’s slightly out of reach, but a modest pullback and successful test of prior pattern resistance would be sufficient evidence to pull the trigger on this EV stock to buy.
Favored Strategy: March $550 / $650 Bull Call Spread on pullback
Plug Power (PLUG)
The next of our EV stocks to buy is Plug Power. Wait a second! PLUG uses hydrogen fuel cells!
That’s true. It’s also fair to say the rubber is already meeting the road in this alternative energy transportation stock.
Similar to Tesla, PLUG is an undisputed leader in its EV niche. In this case, Plug’s next-generation forklift technology has A-list customers such as Amazon (NASDAQ:AMZN) and Walmart (NYSE:WMT) in its ranks. What’s more, key acquisitions made earlier this year should ensure PLUG will meet its ambitious five-year sales and profit plan in the growing hydrogen-based commercial transport market.
Technically, Plug Power’s leadership has manifested itself on its price chart. Even a secondary offering this past week proved to be a very modest bump in the road on its way to gains of more than 70% in November. But as the weekly price chart hints, shares are much closer to being overbought than not.
An eventual challenge of the longer-term support zone from roughly $15.50-$19 would be a welcome event. But building a position beneath $21, which allows for a correction nearing 30% with a hedged stock position, looks like a smarter proposition.
Favored Strategy: March $18 Married Put after correction
EV Stocks to Buy: Nio (NIO)
China-based Nio is the last of today’s EV stocks to buy. The outfit has been on tear in recent weeks and improving its massive run of the past six months. It’s up nearly 80% in November and more than 1,160% in 2020. Earnings, monthly deliverables, maybe an end to Covid-19 and consumers hitting the road en masse or friendlier U.S.-China relations? It’s all been good for NIO stock investors. Maybe a bit too good.
Technically, Nio is the stock which has the most signs of a price chart running on fumes. Stochastics are overbought and nearing a bearish crossover. And the past seven weeks have seen shares clinging and jumping through the EV stock’s upper Bollinger Band. With a doji decision candle forming on the weekly, a failure of its momentum-driven trend of the past couple months looks likely.
Looking forward, a picture-perfect corrective move of 30% would put shares of this leading EV stock at $40. That might seem like an impossibility for today’s buyers. Yet if history simply rhymes, the odds of a larger bearish decline shouldn’t be dismissed. At the same time, calling a top is risky business in a stock of Nio’s caliber.
Fortunately, stock investors have a fix to safely stay the course during a potential detour or conversely, profit if shares continue to motor higher.
Favored Strategy: January $45 / $65 Collar
On the date of publication, Chris Tyler held, directly or indirectly, positions in Nio (NIO), Plug Power (PLUG) and their derivatives, but no other securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.