- With near-term challenges for the industry, auto stocks have corrected. However, this is a good time to buy quality oversold auto stocks.
- XPeng (XPEV): Launch of new models will ensure deliveries growth. International expansion is also a key growth catalyst.
- Rivian Automotive (RIVN): Deeply oversold with an encouraging order backlog. Ample financial flexibility for a major manufacturing capacity expansion.
- Ford (F): Aggressive transformation towards electric vehicles likely to yield positive results. Targeting production of 600,000 EVs by end of 2023.
- Tesla (TSLA): Deliveries remain strong even with supply chain issues. Pipeline of launches in 2023 and 2024 to ensure top-line growth and cash flow upside.
- General Motors (GM): EV transformation plans on-track and with robust financial flexibility, the stock looks attractive at current valuations.
It’s not just the technology stocks that have been battered and bruised in the recent market correction. The decline has been broad-based. Auto stocks have also faced the heat with a deep correction in some high-flying growth stocks. In particular, from the electric vehicle segment. Overall, the S&P 500 Automobiles & Components Index has declined by 34% so far this year.
With a meaningful correction, it’s time for some cherry-picking. There seem to be several oversold auto stocks that can be long-term value creators. I would gradually accumulate some quality names in the next few months.
It’s worth noting that the industry is facing challenges related to raw material inflation. Supply chain issues have also impacted sentiments. Additionally, auto stocks seem to be discounting a potential slowdown or recession in the next few quarters.
Even with these headwinds in consideration, there are auto stocks that seem to have over-reacted on the downside. Let’s discuss five oversold auto stocks that are worth considering for the medium to long term.
|RIVN||Rivian Automotive, Inc.||$28.92|
|F||Ford Motor Company||$12.50|
|GM||General Motors Company||$35.40|
Oversold Auto Stocks: XPeng (XPEV)
Chinese electric vehicle stocks have faced multiple near-term headwinds. This includes chip shortage, raw material inflation and surge in Covid cases in China. Listing uncertainties in the U.S. exchange also added to the worries.
It’s not surprising that XPeng (NYSE:XPEV) stock has plunged by 53% so far this year. The stock looks attractive after a deep correction.
For Q1 2022, XPeng reported 159% increase in vehicle deliveries on a year-on-year basis to 34,561. While vehicle deliveries have been impacted in April 2022 due to a surge in Covid cases, the outlook beyond this headwind is positive.
In Q3 2022, the company’s SUV G9 is scheduled for mass-deliveries. This is likely to boost growth through 2023. The company is also aggressively expanding into Europe and that’s another reason to be bullish.
As of 2021, XPeng also reported cash and equivalents of $6.8 billion. There is ample financial flexibility for manufacturing expansion investments and product development. The near-term headwinds therefore present a good buying opportunity in XPEV stock.
Rivian Automotive (RIVN)
From highs of $179.50 in November 2022, Rivian (NASDAQ:RIVN) stock has plunged to current levels of nearly $29. I believe that it’s among the top oversold auto stocks to buy.
The company’s R1 model already has 90,000 pre-orders from the U.S. and Canada. Further, the electric delivery van order from Amazon (NASDAQ:AMZN) provides revenue visibility.
Rivian has also planned capacity ramp-up to 600,000 vehicles between Normal and Georgia plants. With $17 billion in cash and equivalents, there is ample flexibility for investment in the next 24 months.
For Q1 2022, Rivian produced and delivered 2,553 and 1,227 vehicles respectively. The company has also guided for annual production of 25,000 vehicles. While cash burn is likely to sustain, RIVN stock will trend higher if the order backlog continues to swell.
In the next few years, international expansion is also a key growth catalyst. It’s likely that demand for electric delivery vans will accelerate in Europe. The region is looking to reduce energy dependence on Russia.
Ford (NYSE:F) stock has also witnessed a sharp correction by nearly 40% in 2022. The stock currently trades at a forward price-earnings-ratio of 6.6. Clearly, the 2.3% dividend yield stock is among the oversold auto stocks to buy.
A big reason to like Ford is the company’s aggressive portfolio transformation towards electric vehicles. The company expects to have EV capacity of 600,000 by the end of 2023.
Ford has also signed a non-binding MOU with SK On and Koç Holding to create one of Europe’s commercial vehicle battery production sites in Turkey. Additionally, the company has also secured 25,000 tons of lithium resources annually from Lake Resources (OTCMKTS:LLKKF). The stage therefore seems set for strong growth in the EV segment.
From a financial perspective, Ford reported a total liquidity buffer of $44.6 billion as of Q1 2022. With the recent stake sale in Rivian, the liquidity position will get a further boost. Therefore, there is ample financial flexibility to pursue EV transformation and growth in Americas, Europe and China.
Oversold Auto Stocks: Tesla
Tesla (NASDAQ:TSLA) has also witnessed a deep correction from 52-week highs. With the stock trading less than $700 levels, it’s a good time to accumulate.
Even with supply chain related challenges, Tesla delivered 310,048 vehicles in Q1 2022. Deliveries are likely to be lower in the current quarter with China struggling with the pandemic. However, the long-term outlook for deliveries growth remains robust.
Tesla is likely to commence mass delivery of Cybertruck and Roadster in 2023. The company has also started taking online bookings for Tesla Semi. With a healthy lineup, the company is positioned for sustained growth.
For the first quarter, Tesla reported operating cash flow of $4 billion. The company has strong financial flexibility for investment in growth.
With factories in the United States, China and Europe, Tesla is also positioned for higher cash flows with operating leverage. In particular, once capacity is ramped-up in Europe. Overall, TSLA stock is poised for a reversal rally once near-term headwinds for the industry are navigated.
Among traditional automobile companies, General Motors (NYSE:GM) stock is worth considering after a year-to-date correction of 40%. GM stock trades at a forward P/E of 5.2 and clearly seems oversold.
General Motors has also been focused on ramping-up growth in the electric vehicle segment. In North America, the company expects to produce 400,000 EV in 2022 and 2023. Further, the company has guided for one million units of EV capacity by 2025.
With investments in the EV segment, General Motors plans to double revenue to $295 billion (mid-range) by 2030. This would imply steady top-line growth and cash flow upside in the next few years.
From a financial perspective, the company reported automotive segment liquidity of $32.9 billion as of March 2022. The company has also guided for adjusted free cash flow of $8 billion. With ample resources, General Motors is well positioned for sustained growth.
Overall, GM stock is among the top oversold auto stocks to consider. Once current headwinds are navigated, the stock can quickly double.
On the date of publication, Faisal Humayun did not hold (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.