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When Timing Is Everything
When I recommended Joanna Makris’ top 2022 pick last Monday, I intentionally avoided talking about market timing. A cheap, high-quality company like Arianne Phosphate (OTCMKTS:DRRSF) makes a good buy no matter the time of year.
But not every investment is like that, as investors who bought AMC Entertainment (NYSE:AMC) or Safemoon (CCC:SAFEMOON-USD) can readily attest. High-flying stocks also come with high-flying risks.
Today, I’d like to introduce two more electric vehicle stocks — one from Joanna and one from me. And we’ll take a look at why timing is everything when it comes to these companies.
What to Expect This Week
Monday. Big tech earnings week begins:
- IBM (NYSE:IBM) kicks off tech week earnings trying to answer, “what exactly does IBM do these days?”
- Monster Hunt (CCC:BCMC-USD) finally launches its #PlayToEarn NFT game, giving investors a chance at recouping their 90% losses in BCMC token.
- SundaeSwap (CCC:SUNDAE-USD) opens its first ISO rewards round. Those staking Cardano (CCC:ADA-USD) on one of the “Scooper” pools at 9:45p stand to receive ADA rewards if their pool becomes a validator
Tuesday. More tech earnings:
- Microsoft (NASDAQ:MSFT) reports earnings, showing why its $70 billion purchase of Activision (NASDAQ:ATVI) is proverbial pocket change for the $2.2 trillion tech giant.
Wednesday. Tesla takes center stage:
- Tesla (NASDAQ:TSLA) gives its Q4 update.
- Separately, Boeing (NYSE:BA) explains to investors why it hasn’t caught back up to rival Airbus SE (OTCMKTS:EADSY) yet.
Thursday. Then it’s Apple’s turn:
- Apple (NASDAQ:AAPL) reports, as do Visa (NYSE:V) and Mastercard (NYSE:MA)
- Sologenic (CCC:SOLO-USD) launches its NFT marketplace
- Dvision Network (CCC:DVI-USD) launches its second land sale on OpenSea
Friday. National Have Fun At Work Day:
The 2 Best EV Startups in the Business
When it comes to investor recognition, Tesla is hard to beat. Where else can you sink $10,000 into a stock and then lose $2,000 when the CEO starts a nationally covered Twitter (NYSE:TWTR) feud with a Vermont senator?
But Tesla doesn’t have the greatest upside, at least not any more. Its trillion-dollar valuation makes another 100x gain virtually impossible (doing so would make TSLA worth more than the entire U.S. stock market).
That’s why stock analysts like myself and Joanna Makris often consider smaller startups when looking for Moonshot investments. And even if the timing is wrong, keeping these stocks on your radar is essential for acting quickly the moment the tide turns.
Polestar: Right EV, Wrong Time
Electric vehicle startup Polestar was spun out of Volvo Car in 2016 and rebranded itself as an electric performance brand the following year.
It kept its link, however, with former parents Volvo and Geely (OTCMKTS:GELYF). Here’s why Joanna thinks that makes Polestar a winner:
“A strategic business partnership with Volvo and Geely is an important advantage which should allow Polestar to rapidly scale its manufacturing output over the next few years.
“By leveraging the operations of two well-established vehicle manufacturers, Polestar can scale cost-effectively and in line with demand. These relationships should also help alleviate the well-documented production and quality control issues experienced by Tesla and other EV startups during the early ramp-up stage.”
That’s helped the EV startup move quickly into full production mode…
“Unlike other EV market entrants such as Rivian and Lucid, Polestar is in full volume production and generating meaningful revenues… [the firm] has strong underlying fundamentals.”
…and earn a hefty valuation in the process.
“At an implied valuation of $25B, Polestar would garner the highest valuation of any SPAC connected with the Gores Group.”
But high expectations can often come with an equally high price tag. That’s why Joanna’s recommending investors wait on the sidelines for now:
“Bullish investors should wait for GGPI shares to approach $10 before buying in…
“In the short term, we foresee continued volatility in GGPI shares, and expect a market correction to alleviate the current valuation disparity among EV stocks. Over the long term, Polestar appears relatively well-positioned in a high-growth market.”
See what I mean? Getting these companies on your radar early (like Joanna does) is how you can make big moves the moment the time is right.
Volcon: Even Insider Buying Can Have Off-Days
Then there’s Volcon (NASDAQ:VLCN), a promising ePowersports company that recently launched the highly-rated Volcon Grunt.
“Big tires, big fun, low bar for entry,” raved a reviewer at CNET. “So what is the Grunt like to actually ride? In short, hilariously fun.” In other words, it’s unpretentious and made for pure enjoyment.
VLCN stock, however, has been quite the opposite.
“When Volcon IPO’ed on October 6, I frankly wasn’t that excited. Dozens of companies worldwide have tried their hand at emobility products, and most have failed to produce anything commercially viable.
“And I’m glad I stayed away: VLCN is down 43% from its first day highs.”
— Moonshot Investor, October 25
Shares have since traded mostly sideways, surprising even corporate insiders. Chief Technology Officer Christian Okonsky is down 20% on his $9.2 entry price, and director James Adrian hasn’t done much better.
But when it comes to promising startups, waiting for the right price can still pay off. If Volcon drops to $5 or below, you can bet that corporate insiders won’t be the only ones to double down.
Market Timing 101
I’ve always found that market timers tend to fall into two camps.
- Buy the Dip. Much like pawn shop clearance sales, a stock dropping from $10 to $5 is a siren call to value-minded investors.
- Buy into Strength. “If other people like this stock, why shouldn’t I?” If a stock rises from $10 to $15, growth investors are the ones banging down the door.
So who’s actually right? You’re going to love my answer.
According to a quantitative study by veteran fund manager James O’Shaughnessy, either strategy can work independently… but the top-performing portfolio combined elements of both.
In other words, you’re looking for a company that has first gone down in price and then back up. Companies like Facebook (NASDAQ:FB) that flop after their IPO can eventually turn a $18 entry price into $300.
That’s why I get so excited when fellow analysts like Joanna find companies like Arianne Phosphate. The stock is up 83% over the past year, yet still trades at a discount compared to the value of its mining assets.
But when values are high — as they are with Polestar and Volcon — it pays to time the market. Because we know that the best way to play these stocks is wait for the shakeout, then buy into strength.
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On the date of publication, Tom Yeung did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing.