Battery stocks have been in hot demand for years as investors, particularly as electric vehicles (EV) gained momentum. While its true that the shift away from fossil-fuel powered cars has been a catalyst, it’s far from being the only reason investors should be thinking about this sector. Cars won’t be the last major technology to be electrified— there are a whole host of other reasons the battery market will be fast-growing for some time to come.
Renewable energy is another big reason batteries will be in high demand. Unfortunately, the wind doesn’t always blow and the sun doesn’t always shine. Capturing and storing the energy they produce is essential if we are to integrate renewables into our energy mix in earnest. Batteries help with this, and the further better and efficient they become, the more likely that we can start to rely on renewable energy as an increasingly major source of power.
That’s not to discount the EV market, as this is one of the primary markets top battery stocks supply at present. While the auto industry tends wax and wane alongside the wider economy, we could see some insulation for EV makers even as the economy deteriorates. That’s because the EV market is supported by the ongoing push toward net zero. So governments around the world will be looking to incentivise the electrification revolution, and that means supporting markets, like EVs, in the years to come.
So where should you be looking for battery stocks to buy? It’s a tough question because many of the worlds battery makers are operating on a knife’s edge as they develop the rapidly changing technology. Your best bet is to zoom out, look for picks throughout the value chain and concentrate on companies with a solid path to profitability or expanding demand.
Magna International (MGA)
Admittedly, Canadian autocrats manufacturer Magna International (NYSE:MGA) isn’t a purely one of the battery stocks. In fact, Magna doesn’t make the batteries themselves at all. Instead the group makes battery enclosures necessary in the construction of EVs. Magna has inked deals with several big names including Ford, to supply these key components as demand for the vehicles takes off.
There are two key reasons to choose Magna when you’re looking for battery stocks. The first is diversity. The battery market is riddled with new, risky plays that have unproven technology leading the growth story. Magna’s diverse portfolio of products— from seating options to mirrors, the company is one of the largest automotive suppliers in the world. That means as technology grows and changes, Magna isn’t at risk of being left behind.
The other reason to pick Magna is to bet against the recession fears plaguing the market. Magna’s entrenched in the auto industry which will likely feel the sting of a deep recession. With those fears largely priced in, it could be a good opportunity to make a play in this sector if you think recession worries are overdone.
QuantumScape (QS)
Volkswagen-backed QuantumScape (NYSE:QS) is a pure play among battery stocks, with the group’s fast-charging technology being one of its key differentiators. It’s working to create a battery that can charge up to 80% in around 15 minutes. Plus, the battery itself is expected to be smaller and lighter than peers’, meaning it’s more efficient and requires less energy to cart around.
These more efficient batteries are said to be the future for EVs, and QuantumScape is one of the first companies to be working on them. The group’s already started sending out prototypes for testing, suggesting it’s relatively close to offering a sellable version.
Notably QuantumScape isn’t profitable, yet. That means investors are largely relying on the group’s ability to deliver on usable battery technology. This is a risky assumption, particularly as some of its peers find their cash drying up. For now, QuantumScape looks like it isn’t in danger of bankruptcy, but if its new battery turns out to be a dud, the company could struggle.
Anglo American (NGLOY)
Sometimes it pays to zoom out to look at the supply chains when it comes to major investing trends, and for battery stocks that means considering miner Anglo American (OTCMKTS:NGLOY). Notably, Anglo doesn’t just supply battery makers. The group’s operations include everything from the copper needed for batteries, to the iron ore needed for construction, and the diamonds needed for engagement rings. This diversity means the group has some insulation when certain parts of the market slow down.
One of the key reasons to like Anglo is the company rock-solid balance sheet. The group’s net debt is well below cash profits, meaning there’s plenty of wiggle room to invest in new growth or protect operations in the event of a slowdown. It also means the group has plenty of cash floating around to support its 7% dividend yield.
Miners like Anglo tend to struggle somewhat in times of economic uncertainty, so investors can expect somewhat of a bumpy ride. But thanks to Anglo’s exposure to battery markets, the company is in a strong position to weather the storm.
On the date of publication, Marie Brodbeck 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.
