An Argument Can Be Made Luminar Is Not the Best Option

We’re past the halfway pole in 2021’s first month of the year and Luminar Technologies (NASDAQ:LAZR) appears stuck in neutral, with LAZR stock down 2% year-to-date through Jan. 13.

A photo of an electric car with the charger plugged in.
Source: Nick Starichenko/

In my last article about the provider of lidar sensors in late December, I felt like its stock was a good buy for aggressive investors in the low $20s. While it hasn’t done much since then, it certainly hasn’t fallen the 30% or more required to meet my suggested entry point.

Perhaps it never will.

I first recommended Luminar in September 2020 after it announced its combination with a special purpose acquisition company. Up 167% since then, there’s a good argument to be made for the early SPAC investors — Gores Metropoulos went public in January 2019 — to take profits now that the one-year short-term capital gains rule is no longer in play.

Don’t get me wrong; I do believe that Luminar’s story has legs beyond 2021. That said, I also believe more risk-averse investors might want to consider a better option to ride the wave of autonomous driving.

One possible place to start is Ark Investment Management and investment manager Catherine Wood.

Forget LAZR Stock and Buy ARKQ Instead

Presumably, the reason you’re buying LAZR in the first place is that you believe in a world that includes autonomously driven vehicles. Nothing wrong with that. I do, too, especially as I get older and less comfortable driving on congested city streets.

The question is: If you believe in such a world, and you don’t have unlimited resources, why would you bet on a single company like Luminar when you can give yourself 45 companies benefiting from autonomous technology?

The ARK Autonomous Technology & Robotics ETF (BATS:ARKQ) got its start in September 2014. It invests in 30-50 stocks that are expected to benefit from five major areas: 1) Autonomous Transportation, 2) Robotics and Automation, 3) 3D Printing, 4) Energy Storage, and 5) Space Exploration.

As Ark Investment ETFs go, ARKQ is a lightweight with just $633 million in total assets gathered over a little more than six years. By comparison, the ARK Fintech Innovation ETF (NYSEARCA:ARKF) has raised $674 million since February 2019.

But forget ARKQ’s shortcomings and focus on its list of holdings.

In the top 25 holdings, you have Tesla (NASDAQ:TSLA) at 12% and first position along with BYD (OTCMKTS:BYDDF) in 11th spot and 3.04%. While these are the closest holdings to autonomous driving you’re going to get, the important thing is to remember that the name of the game is long-term performance.

Since its inception, ARKQ’s delivered an annualized return of 20.3% through Sep. 30, 2020, and 40.1% annualized over the past five years through Jan. 13.

Before you say anything, it’s important to mention that past performance is not an indication of future returns. In fact, given Tesla’s the biggest holding by 473 basis points, it’s fair to say the fund could be ready for a big letdown.

Long-term, however, I like its chances.

The Other Alternative

You probably think I’m going to recommend another ETF that’s focussed on autonomous driving. I could do that. InvestorPlace’s Todd Shriber recommended seven of them back in November 2018. I think I’ll leave that for another day.

In the meantime, you could invest in a diversified portfolio of stocks that includes LAZR but limits your financial risk.

How so? By investing using an online brokerage that offers fractional shares.

Firms offering the service include all the major players, including Robinhood. The downside, according to its website, is that fractional trading orders are only available for good-for-day (GFD) market orders, which means if you’re trying to buy LAZR on a volatile day, you might get a lesser fraction than if you were able to place a limit order.

That said, if you’re putting together an equal-dollar-weighted 20-stock portfolio based on $5-10,000, the downside on the trade would be minimal.

The Bottom Line

As I said earlier, I do see a bright future for Luminar, especially since it’s partnering with Volvo for its next generation of vehicles that will be self-driving and launch in 2022.

That said, I’m getting tired of talking about companies post-SPAC merger that isn’t likely to make a profit for three to five years.

ARKQ gives you less hypothetical and more of the here and now. That’s good to know if sleeping soundly is a key attribute of your investments.

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

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