Aurora Innovations (NASDAQ:AUR), which is developing technology that will enable trucks to drive autonomously, has a huge opportunity and impressive partnerships. What’s more, the valuation of AUR stock is reasonable, given Aurora’s strong outlook.
Also importantly, I expect many growth stocks, including Aurora, to rebound strongly in 2022 and potentially in the last two weeks of this year.
Let’s dive into what makes this self-driving truck company such a good long-term play for investors.
A Huge Opportunity
I’ve been hearing about labor shortages in America’s trucking sector for at least the past four or five years. And during that time, I’ve heard more than a few radio advertisements practically begging truck drivers to join Amazon (NASDAQ:AMZN), Walmart (NYSE:WMT), and other major companies.
So I imagine that now, at a time when many sectors are experiencing intense labor shortages, the shortage of truck drivers must be extremely acute. Supporting my theory, in October CNN quoted the chief executive officer of the American Trucking Associate as saying that, “The trucking industry is short 80,000 drivers, a record high.”
Given the tremendous amount of money that huge retailers like Amazon, Walmart, and Target (NYSE:TGT) have, the huge extent to which they depend on trucks and truck drivers, and the tremendous shortage of drivers they’re facing, Aurora can make a great deal of money from them, directly or indirectly.
By directly or indirectly, I mean that Aurora can sell its technology directly to these huge retailers or to truck makers which will then market Aurora’s technology to the retailers.
Aurora’s Impressive Partnerships and Reasonable Valuation
In September, Aurora announced that it was partnering with PACCAR (NASDAQ:PCAR), a large truck manufacturer and FedEx (NYSE:FDX), the gigantic package delivery firm, to test “autonomous trucks in linehaul trucking operations.”
Specifically, PACCAR’s trucks, equipped with Aurora’s autonomous driving platform, were slated to immediately start carrying FedEx loads between Dallas and Houston. “The trucks will operate autonomously, with a backup driver for additional safety,” PACCAR explained.
Aurora had launched a partnership with PACCAR in January 2021. Under the terms of that deal, the companies had agreed to “develop, test and commercialize autonomous Peterbilt and Kenworth trucks.” And under the agreement, “PACCAR’s state-of-the-art autonomous vehicle platform [was slated to be combined] with the Aurora Driver to enhance the safety and operational efficiency of PACCAR’s customers,” the truck maker noted.
Among Aurora’s other major partners are “Toyota, Uber, [and] Volvo,” according to Aurora’s website.
In terms of valuation, given the tremendous opportunity that the company has. its $13.9 billion market capitalization of AUR stock is not daunting.
Put another way, I can easily see the company’s revenue reaching around $5 billion to $8 billion by 2025. As a result, I believe that AUR stock’s current valuation is reasonable.
A Favorable Macro Environment for AUR Stock
The current downturn of growth stocks reminds me very much of the collapse of tech stocks that occurred in December 2018. Both a few years ago and now, there were fears that many growth names were overvalued as the Federal Reserve was tightening monetary policy. The main difference is that now large tech stocks seem to be mostly avoiding the correction, while they did not three years ago.
But just as investors in 2019 realized that the valuation of high-quality tech stocks had been justified in 2018, I expect growth stocks with good businesses and positive outlooks to rebound strongly in 2022. That should create a good environment for AUR stock to thrive in 2022.
The Bottom Line on AUR Stock
I expect Aurora stock to outperform the Nasdaq in 2022 and for several years thereafter. However, I’m more upbeat on one of Aurora’s competitors, Embark (NASDAQ:EMBK), because of the latter company’s lower market capitalization.
Nonetheless, I think long-term investors who buy AUR stock and/or EMBK stock will generate strong profits. Therefore, I recommend buying either or both names.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.