Predicting rate cuts in 2024 has been exceedingly difficult. Yet here in late July it looks increasingly likely that cuts could come as soon as September. Inflation is improving and the labor market is in better balance. That has led top Fed officials to say they are optimistic about a shorter path to lowered borrowing rates. Cheaper lending will spur all kinds of economic activity which should benefit all sectors, especially EVs and renewable energy stocks.
Meanwhile, the great majority of those stocks continue to be undervalued. That suggests there is an opportunity to buy at cheap prices in anticipation of rate cuts. Once those rate cuts occur, it should serve to boost shares in those downtrodden sectors.
A medium-term perspective on electric vehicle stocks seems warranted: Global sales volumes are predicted to more than double between 2023 and 2027. Meanwhile, renewables look equally interesting. Subsidies and decarbonization demand pull will catalyze continued growth.
The renewables sector has been particularly hard hit by rate hikes. That alone suggests it’s highly worth considering as cuts loom on the horizon. Let’s take a look at several stocks worth investing in across those respective sectors.
Tesla (TSLA)
Tesla (NASDAQ:TSLA) is always an interesting stock to follow because it is so valuable and there are so many factors that move its share price. The company is run by one of the most dynamic business people globally in Elon Musk. It’s also one of the most important EV manufacturers globally. Furthermore, the company is heavily involved in artificial intelligence. In short, there are many catalysts to consider in judging the company at any given time.
Rate cuts are one of those factors. The impact of interest rate hikes can be seen across Tesla’s financial statements. All liabilities can broadly be thought of as debt. companies must pay back their liabilities in the short-term and over the long term. The point I want to make here is that Tesla’s liabilities have increased with higher lending rates.
Conversely, liabilities should decrease as rate cuts are implemented. Beyond that, more consumers will then be likely to buy Teslas as the broad macroeconomic effects of lower rates spur the economy upward.
BYD (BYDDY)
BYD (OTCMKTS:BYDDY) is a legitimate challenger to Tesla for global dominance of the electric vehicle sector. It has swapped positions with Tesla as the leader in EV market share over the past few years. That has made it one of the top EV stocks overall. At the same time, BYD has suffered during the most recent period of quantitative tightening.
It will benefit greatly once rate cuts are implemented. Let me give you a broad, powerful reason why BYD is such a strong investment. The simple fact is that electric vehicles enjoy strong pricing advantages over their internal combustion counterparts. Compare BYD’s 21% gross margin with that of Ford (NYSE:F), for example, at 8.5%. It perfectly illustrates the idea that the EV business model is much better overall. It’s a big part of the reason why so many investors like EV stocks. High gross margins create all kinds of favorable internal economics that better reward investors.
As BYD continues to grow and further establish its leading position in the market, those internal economics will improve.
Nextracker (NXT)
Nextracker (NASDAQ:NXT) is a strong renewable energy stock overall and one that should continue to perform well. The company provides solar tracker and software solutions for utility-scale and distributed generation solar projects in the United States and internationally.
The renewable energy sector was particularly hard hit by rate hikes and solar stocks in particular took a big hit all of last year. Increased lending costs at all kinds of knock-on effects across the renewable sector.
As rates dropped the opposite should be true. Nextracker, though, is already performing very strongly. 2024 revenues grew by 31%, reaching $2.5 billion. The company ended its fiscal year on March 31 and saw strong momentum to end 2024. Revenue growth reached 42% in the fourth quarter. The company reported GAAP net income of $496 million during the fiscal year 2024. GAAP net income reached $223 million in Q4 suggesting a strong momentum in terms of overall profitability. The company is well positioned to take advantage of continued solar growth whether prompted by AI or other factors. It’s a well-run company overall which is probably the best reason to invest.
Beam Global (BEEM)
Beam Global (NASDAQ:BEEM) is a stock representing a company operating at the intersection of electric vehicles and renewable energy.
The company’s main product is the EV ARC, a solar-powered EV charging station. It’s an off-grid portable charging option ideal for remote locations. It generates its own electricity through solar panels providing clean energy for EV charging. Beam Energy has a focus on sustainability and integrating renewable energy sources into EV charging infrastructure.
As you can see, Beam Global is an excellent example of companies that sit at the intersection of the renewable energy and EV sectors.
The company also seems to have a momentum on its side at the moment. Beam Global just began shipping its EV ARC technology in Europe. The company concurrently announced that Q2 purchase orders grew by a record 128%, reaching $10.6 million. More than half of its EV ARC orders in Q2 are from new customers suggesting it may be entering a period of rapid growth.
Enphase Energy (ENPH)
Enphase Energy (NASDAQ:ENPH) is like any other stock in that investors want to know how well the company is using debt.
The answer is that Enphase Energy appears to be using debt responsibly. That’s a strong reason to invest as rate cuts loom. Of course, Enphase Energy’s end market is residential so it isn’t positioned to benefit from the positive effects of AI on the solar market. That aside, let’s get back to the debt argument because it favors Enphase Energy as an investment.
On March 31, Enphase Energy had approximately $1.3 billion in debt on its balance sheet. The company also had $1.6 billion in cash at that time. Enphase Energy could wipe out all of its debt if the company wanted to. The company is much, much more likely to refinance some of that debt in the future when rates fall. Regardless, it all suggests that Enphase Energy is running balanced operations. $97 million of the company’s overall debt is current, meaning it’s due in 12 months or less. The $300 million cash buffer means it’s safe. Look for the company to renegotiate the bulk of its debt – which is long term – as rates fall.
SolarEdge Technologies (SEDG)
SolarEdge Technologies (NASDAQ:SEDG) is an interesting renewable energy stock at the moment because it offers a blend of pros and cons. Ultimately, I think it’s a buy because its cons are not particularly serious and its pros are attractive.
SolarEdge Technologies has historically been a company that operates well in relation to debt. The company has generally been able to utilize equity to fund its operations rather than debt. That shows up on the balance sheet as a debt to shareholders equity ratio below one. And while SolarEdge Technologies continues to boast a ratio below one, the company does have some concerns. The company posted a gross profit loss in the first quarter. Operational losses also occurred in the first quarter. That’s concerning because the company was not producing earnings to fund operations. If that were to continue, SolarEdge would have to consider issuing debt to fund operations.
Yet, SolarEdge has real opportunities that continue to outweigh the negatives. The debt ratio mentioned above is still healthy for one. Furthermore, SolarEdge is positioned to take advantage of the AI opportunity as a commercial and utility scale solar firm. Thirdly, rate cuts should spur all kinds of external and internal catalysts that position it well otherwise.
ON Semiconductor (ON)
ON Semiconductor (NASDAQ:ON) continues to be a strong chip stock in the EV sector that investors should consider. The company, like all others, should benefit from the broad, positive effects of rate cuts.
ON Semiconductor benefits from a strong presence in the automotive semiconductor market, which is expected to grow significantly due to EVs. ON Semiconductor is also a leader in Silicon Carbide (SiC) technology, a crucial material for next-generation power electronics in EVs. SiC technology offers advantages like higher efficiency and faster charging times compared to traditional silicon. The company very recently played up that opportunity in a press release promoting its innovation efforts in the SiC sector.
ON Semiconductor continues to be essentially flat from a fundamental and operational perspective. The company is sort of wading along in anticipation of future EV growth. Shares are expected to appreciate in price in the future and now is a good time to consider stocking up on shares in anticipation of rate cuts and an EV rebound.
On the date of publication, Alex Sirois did not have (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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
