Investors looking to juice their portfolios with electric vehicle stocks may get higher voltage and more reliable returns from battery makers than the automakers, as highlighted by Barron’s.
The article points to three industry players which may offer as much as 30% more upside after already running up bigger gains than the broader market. These companies are suppliers of lithium batteries who may have more than one customer so the bets are hedged among automakers.
Buy the Suppliers
The piece favors the suppliers over the carmakers, since it’s unclear which vehicles will win the race for consumers’ hearts and wallets, but all of them will need battery power for the foreseeable future. It likens the battery makers to the makers and sellers of pick axes and pans who made fortunes selling their wares to a multitude of miners, most of whom did not strike it rich during the California gold rush. (For more, see also: Investment Opportunities in New Battery Technology.)
South Korean LG Chem (051910.Korea) for instance supplies batteries to General Motors Co. (GM) for its Chevy Bolt. Samsung SDI (006400.Korea), meanwhile, fuels European automakers including Volkswagen, BMW, and Daimler as well as Fiat Chrysler. Japan’s Panasonic (6752.Japan) works with its domestic EV producers Toyota Motor Corp. (TM) and Honda Motor Co. (HMC) as well as Tesla Inc. (TSLA).
The stocks have each run up more than 20% over the past 22 months, according to the November 18 Barron’s piece. It also pointed out that the stocks had recently been clipped about 5% at that time due to concerns government subsidies for electric vehicles may be cut in the U.S., China and Europe. The bullish story said that makes “the opportunity even more attractive.”
Bullish on Demand Growth
Why? Barron’s notes that the market has nearly tripled in the past two years and that there is growing demand as more automakers introduce electric vehicles. It cites a Goldman Sachs estimate that auto battery capacity will increase 136-fold to 2,319 gigawatt hours (GWh) in 2040 from just 17 GWh in 2015—creating a $180 billion global market by then from just $450 million in 2015. (For more, see also: Automakers Will Get a Jolt From Electric Car Sales.)
Barron’s cites bullish analyst calls for each of the three stocks:
- Bernstein sees 25% upside for Samsung SDI with its bet on batteries and OLED screens. “In batteries, SDI is well-positioned to benefit from the growth in electric vehicles and energy-storage systems globally. In OLED [used in phone and video screens], its advanced electronic-materials business as well as equity income from Samsung Display is driving the lion’s share of earnings growth.” The ordinary shares trading in Seoul have more than doubled so far this year.
- Macquarie Securities sees LG Chem as the leader in the space with a 26% gain for the stock over the next 12 months as its earnings per share grow 73% in that time frame. The stock has gained more than 60% already in 2017.
- And Morningstar backs Panasonic due to its deals with Tesla and the Japanese automakers, putting a 30% upside target on the stock price. Panasonic’s stock is up some 40% year to date.
While these are big gains with high expectations for even more returns, the piece does note some other battery stocks have soared: lithium play Sociedad Química y Minera de Chile (SQM) is up 252% since January of last year through November 18. Cobalt stock eCobalt Solutions (ECS.Canada) has jumped nearly 980% in that time, and Clean TeQ Holdings (CLQ.Australia) has catapulted up 7503%.