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How easy is it to earn a million dollars?
In their 1996 book The Millionaire Next Door, Thomas Stanley and William Danko made it sound effortless. In that now-classic book, they revealed that most American millionaires earned their wealth by simply saving money and wisely investing it.
In fact, they say you might be living next door to one of these millionaires and never know it.
Sounds straightforward. But becoming a millionaire is rarely easy.
Several years later, famed author and former Wall Street trader Nassim Nicholas Taleb noted in Fooled by Randomness that Stanley and Danko never revealed what wise investing actually meant.
“What of the millions of investors who invested in the wrong things,” Taleb asked. And what of the “unusual episode in history” when the return on assets was astronomical in historical terms?
In other words, becoming a “millionaire next door” also involves some skill in finding solid long-term investments and sticking with them.
Sometimes, it’s the fast-moving Amazons and Teslas of the world that create fortunes. There’s no denying the stock-picking success of analysts like Luke Lango.
But more often, these millionaires next door are buying hum-drum dividend-paying firms like Home Depot (NYSE:HD) and Walmart (NYSE:WMT). These sorts of stocks helped drive investors like Louis Navellier to fame. They’re dependable companies that can help ordinary investors turn their savings into extraordinary long-term gains. (I’ll have a story later that illustrates this.)
Today, these kinds of reliable bets are finally emerging in the fast-moving world of electric vehicles. Established firms are catching up with riskier startups, giving conservative investors the chance to acquire dependable and potentially fast-moving picks.
In today’s letter, we’ll take a look at five conservative EV stocks through the eyes and pens of the writers at InvestorPlace.com, our free market news site.
Maybe one of them will make you the next millionaire next door…
EV Stocks to Buy: Albemarle (ALB)
Conservative investors have long struggled to find safe investments in electric vehicle battery stocks. Existing companies such as QuantumScape (NYSE:QS) and Lithium Americas (NYSE:LAC) often lack meaningful revenues because of the industry’s relative youth.
Albemarle (NYSE:ALB) is an outlier in this case. The firm is one of the world’s largest lithium producers and already generates $700 million in free cash flow annually. The company has better geographic diversification than rival Sociedad Quimica y Minera de Chile (NYSE:SQM), and production is set to roughly triple by 2030 thanks to this foresight.
As InvestorPlace.com writer Ian Cooper notes this week, Albemarle is the lithium industry’s 800-pound gorilla and that we could see its price rise to $290 as soon as this year. Cooper believes that recent weakness in lithium prices is a golden opportunity to buy.
I certainly agree. Albemarle controls some of the world’s lowest-cost lithium assets through its Australian and Chilean mines. Experience tells us that low costs are the best indicator of long-term outperformance in the mining industry. For investors seeking high quality and growth, Albemarle provides the best of both.
InvestorPlace Macro Specialist Eric Fry agrees as well. In fact, Albemarle is one of several stocks he recommends in order to cash in on the birth of an EV manufacturing and support “supercluster” in and around Chattanooga, Tennessee. To learn more about the rest of his picks, see his full presentation here.
Fisker (NYSE:FSR)… Faraday Future (NASDAQ:FFIE)… Nio (NYSE:NIO)… identifying the “Next Tesla” has become increasingly difficult as contract manufacturing becomes the norm. Outsourced manufacturing lowers the barriers to entry, making EVs almost as easy to launch as a new smartphone brand.
Fortunately, established auto-part makers like BorgWarner (NYSE:BWA) care little for which EV firm eventually survives. These upstream makers are much like the Qualcomms and Texas Instruments of smartphones – producing highly specialized components used by virtually every downstream player.
BorgWarner is notable for its specialization in powertrains – the electric drive motors, controllers, batteries, and transmission systems that (literally) help EVs move forward. It’s impossible for most automakers to build a new EV without components from BorgWarner or one of its few competitors.
BorgWarner also comes with the benefit of a low share price. Markets are currently hyper-focused on the firm’s legacy turbocharger business – a lucrative but shrinking portion of BorgWarner’s revenue stream. That prices BorgWarner at a low 9X forward earnings.
Additionally, BorgWarner’s expansion into batteries and motors will help the firm acquire a larger dollar-portion of every new vehicle sold.
InvestorPlace.com writer Chris Lau recently positioned BorgWarner as one of seven stocks “long overdue for a relief rally.” For more on that, click here.
EV Stocks to Buy: BYD (BYDDY)
Vandita Jadeja notes for InvestorPlace.com that BYD (OTCMKTS:BYDDY) now surpasses Tesla as the world’s biggest electric vehicle producer by sales, Indeed, six of the top 10 electric vehicle models sold in China are now by BYD.
This month, Will Ashworth calls the firm as “far and away the best EV stock in China.”
BYD delivered 104,364 battery electric vehicles (BEVs) in April, up nearly 84% year over year and 1.6% from the previous month. Production also rose sharply from a year ago, with BEV production up 87.3% and plug-in hybrid EV production up 106%.
BYD is also beginning to expand outside its home markets. The firm is an early Chinese mover in the European market, where high energy prices make smaller cars popular. And expansion of its Atto 3 model in Asia Pacific is already yielding results.
Analysts forecast that BYD will see earnings rise 40% annually through 2025.
This week, Luke highlighted Rivian Automotive (NASDAQ:RIVN) as the only major EV startup that didn’t miss first-quarter delivery estimates or cut 2023 production guidance. In a recent update, he outlines why he believes the California-based startup could be the most valuable EV pick.
- Leader in a Strong Demand Niche. Rivian’s early mover advantage in electric trucks means it has even Tesla beat to the punch. By the time the Cybertruck is launched, investors should expect Rivian’s products to be even further ahead
- Strong Brand Equity. Rivian has established “exceptional luxury branding” and is arguably the highest-performing electric pickup truck in market today. The R1T has almost twice the range of a standard Ford F-150 Lightning.
- Mammoth Balance Sheet. The firm has $11 billion in cash that “should enable it to create an electric vehicle empire by 2025.”
Essentially, Rivian has found a promising niche, executed production to perfection, and never deviated from its vision. That sets it far apart from other startups that have jumped from one prototype to the next.
Investors with a higher risk tolerance might consider giving Rivian a shot – the company has better growth prospects than its rivals.
EV Stocks to Buy: Li Auto (LI)
In April, Louis and his team picked out Li Auto as a stronger choice than rivals Nio and Xpeng (NYSE:XPEV). He noted that Li was trouncing comparable names in terms of deliveries growth and model launches.
Li Auto’s recent earnings announcement on May 10 strengthened his case. Louis and his team noted that the firm served a full course of eye-catching data points, including a 65.8% increase in EV deliveries and a 96.5% increase in revenues.
Essentially, his bullish thesis comes down to three facts:
- Mass Market Target. Unlike luxury-tier Nio and Xpeng, Li Auto has wisely targeted the upper-middle -class range, increasing its overall market appeal and creating benefits of scale. Xpeng is only belatedly moving down-market.
- Adequate Funding. Li Auto has a $2 billion at-the-market offering program, giving plenty of financial resources to continue expansion. Companies like Tesla succeeded because they understood the importance of a strong balance sheet, and Li Auto seems to be on a similar path.
- Strong Financials. Li Auto earns an adequate “B” grade in Louis’ Portfolio Grader for its high sales growth, positive earnings surprises, and strong analyst earnings revisions. Historically, these are highly bullish signs of greater gains to come.
By contrast, other Chinese EV makers have struggled to keep pace with Tesla’s price cuts. Louis recently noted that rival Nio has seen demand slow down after failing to adjust prices. Li Auto’s lower cost structure has shielded the firm from these competitive risks.
The $8 Million Janitor
In 2014, former janitor and gas station attendant Ronald Read surprised the world by bequeathing $8 million to charity. Years of investing in dividend-paying stocks had turned the frugal Vermon resident into a multimillionaire.
However, the millionaire-maker stocks that enriched Read no longer have the same shine. General Electric (NYSE:GE) trades 45% below its 2016 level, while General Motors (NYSE:GM) went bankrupt in 2008 and continues to trade flat today.
Instead, wealth has concentrated in growth companies like Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL) that are changing the way we interact with technologies. These “new” millionaire-maker stocks of the 2010s succeeded thanks to enormous demand for computing power and the benefits that go with it. The Apple App Store alone grossed more than $85 billion in 2022.
The 2020s will see EV stocks join the fray. Powerful processors and improved battery technologies are suddenly turning our cars into laptops on wheels. That allows automakers to concentrate on software, rather than developing the expensive internal combustion engines that suck profits out of the industry.
Essentially, that means the car industry is turning into millionaire-maker stocks, just as the Dow Chemicals and General Electrics once did.
Meanwhile, Eric Fry has been telling his readers that EVs and all of their related sectors are coming home… and with that, he says, comes unbelievable wealth-growing opportunities.
On the date of publication, Tom Yeung held a LONG position in GM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.