The recent selloff in electric-vehicle (EV) stocks is a moment for reflection. After an amazing 2020, these exciting stocks are finally letting off some steam. Investors are turning their attention toward traditional stocks associated with the broader economic recovery. However, that does not mean you should abandon the ship. Instead, I will recommend playing with investments closely associated with the EV sector with the same risk — battery stocks.
Analysts at Swiss bank UBS believe electric vehicles could penetrate the automotive market 100% by 2040.
In a March 18 note, Goldman Sachs analysts said global demand for electric car batteries could multiply by nearly 30 times in the next 20 years. Hence, you can understand the excitement surrounding battery stocks.
Since batteries are the main cost driver for electric vehicles, manufacturers will have to maintain supplies and increase efficiency to make sure EV penetration is not affected. Due to the outsized demand needs, UBS analysts are predicting a supply shortage.
As investors get wise to this trend, we will see increased interest in these seven stocks while battery manufacturers and suppliers become more attractive this year.
- Sociedad Quimica y Minera de Chile (NYSE:SQM)
- Albemarle (NYSE:ALB)
- QuantumScape (NYSE:QS)
- Panasonic (OTCMKTS:PCRFY)
- Romeo Power (NYSE:RMO)
- Vale (NYSE:VALE)
- Glencore (OTCMKTS:GLNCY)
Battery Stocks: Sociedad Quimica y Minera de Chile (SQM)
We start this list of battery stocks with the world’s biggest lithium producer. SQM’s main production facilities are established in the Atacama Desert between Chile’s I and II regions.
The company is not a pure battery play since it “operates in five business areas: specialty plant nutrition, iodine, lithium, industrial chemicals and potassium.”
Lithium remains its top priority, though, and considering the central role of the commodity in lithium-ion batteries, the stock is one of the best ones in the space.
Plus, if you are a fan of fundamental strength, then this is right up your alley. The last quarter saw the company beat analyst estimates by 26.3%, per CNBC data. Not surprising, since the demand for its core product is skyrocketing.
And the momentum will not stop anytime soon. In fiscal 2021 and 2022, the top line is expected to increase by 20.3% and 40.7%, respectively, according to data compiled by Refintiv.
Chile has suffered from domestic unrest in the past. Hence, the company’s only major issue on its production sites is the risk of political turmoil.
For many investors, Albemarle is the go-to stock in the EV battery space. Apart from its scale, the company is headquartered in Charlotte, North Carolina, which gives it a strategic advantage over foreign manufacturers.
It’s been a choppy year for the fine chemical manufacturing company, but shares are now up 2.7% in the last three months. Much of the choppiness was due to declining sales in the last year.
In the fourth quarter of 2020, net sales of $879.1 million decreased from $113.5 million year-over-year, “driven by lower results in the Catalysts and Lithium business segments partially offset by improvement in Bromine.”
There was one other piece of news that particularly hurt ALB investor sentiment. On Feb. 2, Albemarle launched a $1.3 billion share offering to finance its growth plans and pare down debt.
Both the decline in sales and the equity issue are examples of short-term blips for the stock price. I would add this stock to my portfolio whenever there is a dip.
Now we move our attention to one of the most exciting battery stocks. QuantumScape is backed by Microsoft (NASDAQ:MSFT) founder Bill Gates and Volkswagen (OTCMKTS:VWAGY) and is a pure play in the field.
The company is a specialist in quantum glass batteries. These batteries represent the “holy grail,” of the EV industry since they are looking to solve the two most pressing problems keeping EVs from wider adoption: limited battery life and slow charging times.
Nobel laureate John Goodenough, co-inventor of the lithium-ion battery, pioneered the concept of glass electrolyte and lithium or sodium metal electrodes.
At this stage, QuantumScape is ahead of the curve in terms of research. And a breakthrough could lead to multibillion-dollar gains for both the company and its investors.
Volkswagen has poured $300 million in QuantumScape and will have first preference over the batteries produced. After that, the company is free to sell the batteries to any buyer.
In essence, when you are investing in QS, you are buying into a concept more than a company. Therefore, you have to be patient with this one.
Panasonic is one of the most diversified companies in the world. When you invest in the company, it gives you a sense of security when you appreciate the breadth of its operations.
However, we are not here to take a deep dive into the conglomerate’s five main business units. Instead, we are talking about its battery-manufacturing facilities.
Panasonic is a supplier for Tesla (NASDAQ:TSLA), and that relationship in itself should make you bullish about the former’s prospects in the space. However, Tesla has ambitions to shift battery production in-house.
The deal between Tesla and Panasonic will run through at least 2022. Tesla is looking to build the next-generation, lower-cost, “million-mile” electric-car battery. Hence, there is pressure on Panasonic to keep upping its game.
Regardless, even if you put the Tesla contract to one side, we are talking about Panasonic here. It has so many businesses under its umbrella that you can rest easy investing in this stock. Plus, PCRFY stock is attractively valued at 0.5 times price-to-sales.
Romeo Power (RMO)
RMO often gets lost in the shuffle when it comes to battery stocks. Maybe it’s because the company debuted by merging with a special purpose acquisition company (SPAC) RMG Acquisition. Since 2020, electric-vehicle challengers found an easy way to go public without the scrutiny and paperwork attached to the traditional initial public offering (IPO).
That’s when the SPAC phenomenon emerged. However, EV fatigue is setting in. Most investors are taking profits and investing them elsewhere in more stable areas, especially with the pandemic receding into the background. However, now is not the right time to abandon a stock like RMO.
Rather than focus on the manufacturing side of electric vehicles as most EV stocks do, RMO focuses on the battery-development sector. The company boasts it has a solution that targets three of the common obstacles restricting wider EV battery adoption.
According to Romeo Power, its battery will provide a 30% energy density advantage and hold up in all temperature conditions. Due to a rigorous manufacturing process, the battery is also very safe.
RMO targets two segments: class 4-8 trucks and buses, and high-performance vehicles, along with other commercial vehicles.
These are underserved niches, ones that will help the company stand out from the crowd. At the time of the merger close, the company had $350 million to finance growth. RMO has $544 million in contracted revenue and another $2.2 billion possible under negotiation.
The best part? The stock is down 50% in the last three months, making it very attractive at current rates.
We have gone in several directions in this list of battery stocks — everything from battery retailers to manufacturers to lithium providers.
However, the next entry on our list of battery stocks is a bit out of left field, considering it is focused on mining nickel, which is very important in the battery-manufacturing process.
As is the case with most miners at this stage, the major problem will be maintaining supply for the EV sector. Other than that, the company is moving in the right direction, and its fundamentals are solid.
In its most recent quarter, revenues came in at $8.467 billion, a record for the first quarter. Net income was $5.546 billion, rising by $4.807 billion sequentially from the last earnings report.
VALE stock trades at a very attractive 4.6 times forward price-to-earnings (P/E).
Much like the last entry on our list, Glencore is focused on nickel production. One of the world’s largest commodities traders, the company produces nickel in Asia, Australia, North America and Europe.
However, it’s important to note here that Glencore is not a one-trick pony by any stretch. It provides logistics, storage and financing, and a host of other services to commodity producers and consumers.
Considering its diversified portfolio and clientele, the company is one of the safer options on this list to play the battery space. The markets realize this, as GLCNF has outperformed the S&P 500 and its sector in the past year.
Still, rising copper prices and increasing demand for nickel will keep investors interested in this one.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. Faizan does not directly own the securities mentioned above.