The global demand for electric vehicle (EV) batteries is likely to grow multi-fold by the end of the decade. This would also imply robust growth for some of the best EV battery companies.
Notably, the EV sector has faced some near-term challenges in the form of macroeconomic headwinds, inflation, and supply chain concerns. This has translated into attractive valuations for some of the best EV stocks. These undervalued battery stocks are worth holding for the next five years.
Coming to the growth potential, the Li-ion battery demand was estimated at 700 GWh in 2022. It’s expected that demand will surge to 4.7 TWh by 2030. While batteries are used for multiple applications, most demand will come from EVs.
Clearly, the opportunity is huge for multiple companies to grow and create wealth. Thus, let’s discuss three names that are worth considering.
Undervalued Battery Stocks: Panasonic Holdings (PCRFY)
Panasonic Holdings (OTCMKTS:PCRFY) is an undervalued blue-chip stock that deserves a place in one’s core portfolio.
PCRFY trades at a forward P/E ratio of 7.8 and offers a dividend yield of 2.4%. Considering the company’s expansion plans, I am bullish on strong upside from current levels of $9.6.
Panasonic has an ambitious plan to quadruple battery capacity by fiscal year 2030. This would translate into healthy revenue, EBITDA, and cash flow upside. At the same time, the company is focusing on improving battery energy density. This can potentially help in reducing the price of EVs.
Notably, Panasonic has been supplying its batteries to Tesla (NASDAQ:TSLA). The latter has an ambitious plan to boost annual EV production to 20 million cars annually by 2030. This will benefit Panasonic in maintaining or potentially increasing market share. At the same time, Panasonic has an innovation edge which is likely to ensure growth.
Albemarle Corporation (ALB)
Albemarle Corporation (NYSE:ALB) stock has witnessed a sharp correction that’s in sync with the decline in lithium price. The downside is a good opportunity to accumulate ALB stock with an investment horizon of five years. With rising demand for EVs, a lithium shortage is likely. Yet, the outlook for the metal is positive through the decade.
From a valuation perspective, ALB stock trades at a forward P/E ratio of 5.4. Further, the stock offers a dividend yield of 1.33%. Of course, pain is likely in the form of EBITDA margin contraction and lower cash flows. However, Albemarle has a strong balance sheet to navigate the challenging times.
Additionally, Albemarle has initiated cost-cutting measures and rephasing of growth investments. Earlier, Albemarle has guided for an increase of its lithium conversion capacity from 200 kilo-tonnes per annum (KTPA) in 2022 to 600 KTPA by 2027. However, these factors are discounted in the valuations. Once overly bearish sentiments wane for lithium, I expect a healthy rally for ALB stock.
Undervalued Battery Stocks: QuantumScape (QS)
QuantumScape (NYSE:QS) is another interesting story among battery stocks. QS stock is high-risk, but some exposure can be considered for potential multibagger returns. The stock has been sideways in the last 12 months, but considering recent business developments, expect a breakout on the upside.
In an important development, QuantumScape has started the shipment of EV battery prototypes to automotive customers. This importantly validates the company’s EV battery technology.
Volkswagen (OTCMKTS:VWAGY) is a notable investor in the company. Further, QS has commercial agreements with six automotive original equipment manufacturers (OEMs).
This provides credibility to the thesis. Of course, even with the recent development, “the company isn’t expected to deliver production-ready prototypes to its clients before 2025.” However, QS stock would surge higher if the validation results from automakers are positive.
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.
