Before the electric battery storage sector returned “high-powered gains” for readers, investors needed to endure a long period of underperformance. Now that the market is enamored with electric vehicle (EV) stocks, though — and by extension, battery stocks — readers have fewer under-covered opportunities.
Fortunately, the battery market is still benefiting from a major shift in EVs. The more electric vehicles there are replacing the demand for gas-powered ones, the higher the demand is for lithium-ion batteries. But despite the run-up leading to unfavorable valuations in this sector, investors have a chance to benefit from the boom ahead. Basically, the product cycle for battery producers is on the upswing.
So, although battery companies that do not have a product on the market yet can be speculative risks, readers may want to add them to the watch list. These upcoming battery stocks have great, promising technology. Also, some companies with a network of electrical storage solutions are in play here. Just be sure to recognize the inherent risks in names that went public through a special purpose acquisition company (SPAC). Additionally, look out for stocks with high short float positions, as bears bet on their demises.
All that said, here are my seven battery stocks to watch:
- Switchback Energy (NYSE:SBE)
- Blink Charging (NASDAQ:BLNK)
- QuantumScape (NYSE:QS)
- Energizer (NYSE:ENR)
- Albemarle (NYSE:ALB)
- Nio (NYSE:NIO)
- Enphase Energy (NASDAQ:ENPH)
Switchback Energy (SBE)
Before its SPAC reverse merger with ChargePoint, Switchback Energy traded at just $10. However, SBE stock soared to the $40 range within weeks in late November. At this level, a short float of 23.63% suggests high risk for investors who missed the run-up.
ChargePoint is an infrastructure provider of EV charging stations. Back in 2018, the company committed to installing 2.5 million locations. However, the markets did not pay much attention to its vow to grow the network by about fiftyfold in the next seven years (now five years). After the successful SPAC listing, though, the cash added to its balance sheet could help it achieve that goal.
Currently, Switchback only has one analyst covering it on Tipranks, offering a $50 price target. Given the lack of coverage, investors should consider waiting for the price to settle before starting a position in this pick of the battery stocks.
Blink Charging (BLNK)
Short sellers have a 31.8% short float on BLNK stock. Despite the bearish bet — which could trigger a short-squeeze at any time — Blink does have some promise operating as an EV charging station network.
Right now, the company has more than 190,000 members and over 24,000 EV charging stations (Slide 5). Plus, as Blink notes in its presentation, the 100-plus battery EVs coming to market by 2024 will certainly drive demand for its products (Slide 3).
In fact, the company estimates that Original Equipment Manufacturers (OEM) have committed some $300 billion to electric vehicles. Historically, worldwide battery electric vehicle (BEV) sales have also risen at a 47% compounded annual growth rate (CAGR) since 2015. Of course, the rapid adoption of EVs will require charging infrastructure growth. This company is banking on that.
Currently, BLNK stock is at lofty levels. If it settles lower, investors may watch its product sales, warranty and network fee revenue growing steadily in 2021 and beyond. However, according to SimplyWallSt, BLNK has been “more volatile than 90% of US stocks over the past 3 months.” So, investors should expect wide price swings ahead. When it reports quarterly results next month, the stock may settle lower if it posts widening losses. Conversely, a strong outlook will squeeze out the bears.
|Surprise Type||Announce Date||Period End Date||Actual||Est.||Surprise (%)|
As shown in the table above, Blink has missed earnings expectations most of the time. This may subdue the enthusiasm for the battery charging network company. It also creates a better entry point for investors who missed the recent run-up and are looking to enter battery stocks.
After peaking at over $130, QuantumScape is trading sharply lower because it registered to sell up to 306 million shares. This would add about $208 million in cash from the exercise of warrants.
But aside from the recent selling pressure and underperformance, the company has great battery technology. For instance, on Dec. 8, the company released performance data for its solid-state battery, which promises to improve energy density and make the range of EVs “comparable to combustion-engine based vehicles.” QS said its battery design will lead to an 80% increase in range compared to EVs using today’s lithium-ion batteries.
And that’s not all — the company also claims it can reach a 15-minute charge of up to 80% battery capacity, which is even faster than charging a smartphone. The technology will also have “zero excess lithium,” saving on resources and a “long cycle life” that’s able to last for “hundreds of thousands of miles.”
Finally, SimplyWallSt notes the firm behind QS stock has a healthy balance sheet. That includes short-term assets of $81.8 million that are well-above the company’s short-term and long-term liabilities of $10.7 million and 11.7 million, respectively.
All in all, if QS can follow through on its promises, it will prove to be one of the best investments in battery stocks out there.
Next on my list of battery stocks is Energizer. The company’s shares topped out at $53.19 this past summer before falling to the $40 range when I last recommended the stock. Why did it fall? The markets reacted negatively to its Q3 2020 results.
But in the third quarter, Energizer did post a net sales gain of 1.7% to $658 million. What’s more, its earnings per share (EPS) of 37 cents was a big improvement from 7 cents a year earlier. Finally, adjusted free cash flow rose to 20.7% of net sales, or $136.4 million.
Moreover, ENR’s integration efforts related to the acquisition of a battery and auto care business is a near-term headwind. So, conservative investors seeking a pure-play battery company should continue investing in Energizer. It has a healthy balance sheet and strong cash flow. And unlike the companies mentioned so far, the short float is low at 4.07%. Plus, ENR stock trades at a forward price-earnings ratio in the teens.
As the chart shows, revenue grew at a healthy pace in a recent five year period, from 2015 to 2019. Net income weakened because of high capital expenditures. Debt also rose in the same period.
However, as Energizer integrates its acquisition and cuts costs, it will become an even stronger company with a great pipeline of technology. As it stretches into the automotive space, look to ENR for big potential.
Albemarle, which mines lithium globally, warned investors on Jan. 12 that a supply shortage will hurt its business. In fact, the company said that if lithium prices do not bounce back, it will not have funds to expand.
Like it did in other sectors, the novel coronavirus pandemic is the cause behind hurting lithium prices. However, if investors assume the disruption in expansion plans is temporary, then ALB’s warning will prove too pessimistic. Furthermore, investors may bet that a shortage by 2025 will lift lithium prices. This would increase Albemarle’s profit margins.
That all said, ALB stock already rose sharply from under $100 in early November. Now its price-to-earnings multiples are at unfavorable valuations.
What’s more, its gross margin, operating margin and net margin are all above both the industry and the S&P 500. Those metrics will continue to rise as demand for lithium increases in the next four years.
|Discount Rate||7.5% – 6.0%||7.00%|
|Terminal EBITDA Multiple||24.0x – 28.0x||25.0x|
|Fair Value||$207.59 – $261.43||$221.68|
Plus, the above five-year discounted cash flow (DCF) EBITDA exit model uses the Perpetuity Growth formula — also known as Gordon Growth — to calculate Terminal Value after five years. Based on those metrics in the chart, this pick has a fair value of over $221.
So, just as investors may want to wait for the hype in battery stocks to subside, the same applies to ALB stock.
Not too long ago, Nio impressed its investors once again, this time with a 150 kilowatt-hour solid-state EV battery announcement. Not only is the battery backwards compatible, but the refreshed technology will also raise the range to 620 miles for the company’s new ET7 model.
All said, though, the battery is not available until 2022, so Nio’s customers will not benefit yet.
However, Nio’s strategy for the new battery’s release maximizes customer satisfaction and profitability. That’s because the battery is compatible with the current EC6, ES6 and ES8 models. So, Nio drivers may upgrade their current EV or switch to a battery lease that includes access to the new battery as well.
As the EV market matures, vehicle suppliers need to differentiate themselves from the vehicle’s features. They need to offer better ranges, too. As such, Nio extended its offering by lowering costs for the customer, making EVs more affordable through its “battery as a service” (BaaS) option. This new battery lease model will increase the company’s recurring revenue, bolstering NIO stock. It will also lift unit sales as prices for electric vehicles fall. This all makes NIO one of the most compelling battery stocks on the market.
Enphase Energy (ENPH)
Last on my list of battery stocks is Enphase, a company that offers the Encharge 10, an all-in-one AC-coupled storage system. More specifically, the system has three storage units and is capable of 10.1 kilowatt hours of capacity.
For homeowners, the battery storage system offers many great features. For example, the Encharge 10 is reliable, thanks to its passive cooling with no moving parts. Additionally, it supports “mobile app-based monitoring and control.” Finally, the makeup of Enphase’s product delivers on “safety and longevity.”
In its most recent third quarter, Enphase posted a non-GAAP gross margin of 41%. Revenue topped $178.5 million as the company shipped approximately 478 megawatts of DC electricity.
Moreover, as shown below, ENPH stock scores well on both quality and growth. Its value score is also fair. Really, only its sentiment score is low, due mostly to the recent pullback.
Yet ENPH is still relatively popular among analysts. Out of 16 analysts covering the stock on Tipranks, 10 recommend it as a buy. They offer an average price target of $170.64. Investors should also keep in mind that, though the stock is trading above fair value, its solar battery solution is in high demand. So, you may want to buy this name instead of other solar energy companies.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.