Rivian (NASDAQ:RIVN) stock has taken something of a beating over the last year. The EV maker has lost nearly 75% over the last year, which has worried investors.
Morgan Stanley analyst Adam Jonas recently made a great case for buying stock and the shares of other high-quality, start-up, electric-vehicle makers, however.
According to Jones, when it comes to investing in automakers, the best way to beat the market is by buying the companies’ shares when the economy is weak.
The firms are struggling mightily to stay afloat, and their outlook appears to be poor.
A Closer Look at RIVN Stock
The best means of beating the market with auto stocks is by buying the shares of automakers whose outlook is underestimated. It’s possible to buy auto stocks at very low levels and generate tremendous returns from them over the long term.
Investors are greatly underestimating Rivian’s long-term prognosis because they are overly pessimistic about the macro economy and about Rivian’s capabilities.
RIVN stock is trading at levels that suggest that the U.S. will have a fairly deep recession in 2022 or early 2023.
As I noted in a previous column, though, I don’t expect a recession to materialize in the next 12 months because both the labor market and consumers’ savings levels remain very strong.
Many highly reputable economists, analysts, and investors have similar views. For example, JPMorgan analysts recently wrote that “The stock market is primed for strong returns in the second half of 2022 as the US economy narrowly avoids a recession.”
JPMorgan thinks that inflation will ease over the next few months, enabling the Fed and its peers in other countries to prevent steep economic downturns.
Meanwhile, RIVN stock has lost nearly 80% of its value since its IPO largely because investors are worried that the automaker may not be able to overcome its production difficulties.
On June 2, a D.A. Davidson analyst wrote: “RIVN has done better than most with respect to its ramp-up of production. It remains to be seen whether RIVN can continue to accelerate production as smoothly as its remarkable vehicles can drive, especially as new facilities open,”
The automaker has a great deal of money that should enable it to continue to accelerate its production. As of the end of last quarter, it had $16.4 billion of cash and only $1.6 billion of debt.
Moreover, the global auto supply chain is improving. Given these two factors, Rivian’s production should meaningfully accelerate going forward. Indeed, the company expects to eventually ramp up its annual production to about 600,000 EVs.
Finally, on the demand side, Amazon (NASDAQ:AMZN) has ordered 100,000 EVs from Rivian, while the automaker has over 90,000 net pre-orders for its R1 truck.
The bottom line is that RIVN stock is a great name to buy for long-term investors because the Street is underestimating the strength of both the American economy and of the company.
On the date of publication, Larry Ramer was long RIVN stock.