Investing is about finding opportunities and hopefully before the masses do. When we are late to a prevailing idea we end up chasing the leaders. Often that delivers disappointment and losses. Today, I will justify why I caution against getting back into Churchill Capital Corp (NYSE:CCIV) stock in its bid to bring Lucid motors vehicles to market.
So far, those who got in late have had a hard time with CCIV stock. So it’s very important they don’t repeat the mistake they made mid-February.
The stock came out of the blocks on fire as a fan favorite. Alas, it then collapsed 72%, and the low was only five days ago. Yesterday, the bulls rejoiced as it rallied 16% on headlines. The rumor was that Lucid could partner up with Apple (NASDAQ:AAPL) in their foray into making cars.
Today, we decide if this is a viable opportunity for CCIV stock, or just another headline to fade. Spoiler alert, at the risk of upsetting the readers, I would not chase this spike.
I know that this is not a popular opinion, but I like to base mine on facts, not hearsay. So far, the Apple rumor about making cars is vaporware – to borrow from an ’80s term. Apple has had backlogs on every one of their tiny widgets, so building cars is not likely realistic.
It could happen, but it’s a rumor too far to add short-term value to a floundering CCIV stock.
CCIV Stock Is Trending the Wrong Way
The harsh fact is that it has been setting lower-highs for months. The merger with Lucid catapulted the stock to $64 per share. But since then it crashed hard and has not regained momentum. It still sits more than 60% below its highs, even after Monday’s massive pop.
Just to be clear, there is a difference between an opinion on an investment and a trade. I acknowledge that it is possible to trade it profitably for those who are active enough to do it. But my comments today are for investors, and for that, I need more meat on the proverbial bone.
Let’s spend a minute addressing the electric vehicle (EV) opportunity in general. The EV assault on the internal combustion engine (ICE) is very real. If this continues, there are more than 70 million vehicles a year that need to be electric instead of ICE. So the upside for manufacturers is massive.
A Narrow-Scope Opportunity Awaits
My contention is that Lucid is a niche market within that. It won’t have the mass appeal like Tesla (NASDAQ:TSLA) does. The currently Lucid models are very expensive and, by definition, target only the 1 percenters.
The king of EVs reported last night and they crushed last year’s performances. The growth is incredible but that’s after a lot of hard work and disappointments. Tesla needed a few miracles to happen before they succeeded. Besides, they have Elon Musk, and there is only one of him. This is not a formula that’s going to be easy to replicate anywhere else.
Since the whole market is still in its infancy stage, I would rather avoid as many variables as possible. Almost two months ago I wrote about this opportunity and I opted out of chasing CCIV stock. Instead, I suggested going with Tesla or Nio (NYSE:NIO). In hindsight, that was the right decision then and I’d make it it again today. These two did much better than Lucid.
When it comes to investing, I sleep better knowing that I don’t have too many unknowns. In the case of Lucid motors, there are nothing but that. The company is still pre-revenue, so the entire stock price is a bet on their future successes. I am not saying that they cannot do it. My preference is to have some tangible metrics.
My EV Pick Is Something Other than Lucid
I need to justify my risk with having fundamentals driving my decision. Therefore, the top three picks would be Tesla, Nio and XPeng (NYSE:XPEV). I understand the excitement over a headline that involves Apple. It is, after all, the darling of Wall Street, but in my book that doesn’t change anything. Until the official word is out, I have to continue to evaluate the CCIV stock opportunity on its own merit.
Apple hasn’t had new things in its repertoire in years. If the headline involved Amazon (NASDAQ:AMZN) on the other hand, then I’d be more apt to chase it.
Technically, Lucid stock is approaching prior failure near $25 per share. The bears will try to hold them there this week. If they fail to do that, the stock can overshoot into the next hurdle just $4 higher. The candle from February 23 speaks volume. It is a massive doji that spans from $44 to $30 per share. That is a huge zone of contention with $35 as its stomach (see arrows on chart). There will be resistance going into it so those long should remember to book profits along the way. When a stock is in a downward spiral, it is smart to use big spikes to get out of trouble.
When I invest in a long shot , I make my risk finite and I don’t add to it. I choose the amount I want to risk but I don’t average down. There is no support that comes from the actual fundamentals. This would then turn into a gamble rather than an investment.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.