Today we will revisit the opportunity that is in the former Churchill Capital Corp., the company that recently brought Lucid Group (NASDAQ:LCID) stock to market.
These electric vehicles are slick and they have strong fans. In reality, they are targeting the high-end income crowd. Lucid’s website shows a starting list price of $70,000, which is not within reach of the masses. Therefore, by definition, the business opportunity is niche. This doesn’t make the company a bad investment.
In fact, LCID stock (formerly CCIV) has been a pretty exciting one to trade. The action offers frequent opportunities for profit. However, owning it for the long term is not for me.
My three picks for EV opportunities for investment are Tesla (NASDAQ:TSLA), Nio (NYSE:NIO) and XPeng (NYSE:XPEV). For long-term risk, I prefer having an ongoing P&L with actual fundamentals metrics. That’s a personal choice, not a knock against those who like betting on future accomplishments.
Meanwhile, LCID stock has been pretty consistent. This predictability makes it a trading vehicle for active investors. I’ve written several articles about the method to buy-the-dip and sell-the-rips.
My timing so far has worked out well in hindsight. The last one came in May when the stock was struggling. I suggested that it had a base and to fade the pop from it. That’s exactly what happened as LCID stock rallied 40%, and then gave back most of it.
LCID Stock Has a Strong Fan base
The good news is that the buyers are consistent with where they assign value to LCID stock. I’m comfortable holding it around $21 per share. Fans of the stock are eager to defend it there. The low for the year is much lower, but I don’t aim for perfection.
Months ago I highlighted the importance of the Feb. 23 candle. Draw a box around its edges, LCID bulls will need to crack into it with force. They’ve had two and a half attempts at it and failed.
The hurdle into it is $30 per share, and that’s where buyers tire. Their last effort failed on July 1 and resulted in a 30% correction. They are currently bouncing to build better momentum.
It’s OK to fail as long as they don’t lose progress. Therefore, it is important that price stays above $20 per share.
Normally I dedicate a paragraph to discuss the fundamentals. In this case, it’s simple, because there aren’t any now. Much of the investor exuberance is about what the company can accomplish in the future.
We have to take the company’s word that they are on track. According to their website, you can reserve one for $300 with a starting MSRP of $70,000. Their FAQ page strangely has no reference to delivery schedule. Management needs to stay true to the production promise. They already pushed it out last time, they can’t afford another.
Short-Term Support Is Critical
It is imperative short term that the $20 LCID floor holds. Headlines are important for the stock because of the lack of current fundamentals. This is a statement of fact, not an insult. Two years is too long in this short-fuse Wall street. That’s an eternity to wait without a P&L to support the price action.
There are two more extrinsic risks to consider.
First is the fact that markets are at extreme highs. Any correction there will cause a debacle in this one through no fault of its own.
Second, there is a global chip shortage impacting the auto industry. We’ve seen legacy companies halt productions because of it. Starting up a new business is tough enough and they don’t need extraneous hiccups.
Because of this, there is a real chance that management delays production once again. Those looking to buy shares now should consider using options. There I can get long the stock and leave room for error. Owning shares now means risking around $24 now with no buffer.
Instead, I can sell the November puts 30% below current and collect a premium. This would be a bullish position that doesn’t not need a rally to win. The stock can fall 30% and I can still break even. That worst case scenario would mean that someone owning shares now has already lost 30%.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nicolas Chahine is the managing director of SellSpreads.com.