A very simple rule to make money in the market is to buy when there is fear. Of course, there also needs to be long term fundamental factors that support the logic of buying depressed stocks. With the market trading near all-time highs, it’s relatively difficult to find value stocks. The best idea is to look at depressed sectors that have the potential to bounce back in the coming years. The electric vehicle (EV) sector is one such area, and that’s why now is the best time to buy undervalued EV stocks.
Without a doubt, the recent depression in EV stocks has been backed by negative developments. These include slower than expected EV adoption, macroeconomic and geopolitical headwinds and intense competition. However, there are high-quality EV companies that are likely to survive and continue growing beyond the decade.
This is a solid list of three undervalued EV stocks to buy before they surge higher. Besides the valuation factor, these EV companies have good fundamentals that will support navigation through challenging times.
Tesla (TSLA)
Tesla (NASDAQ:TSLA) stock has already surged from lows with a rally of 36% in the last month. However, the EV stock remains down 7% in the last 12 months. I expect a strong comeback for Tesla once industry sentiments improve.
From a macroeconomic perspective, rate cuts are likely to support growth and lower the cost of borrowing. This is likely to help Tesla in accelerating deliveries growth. However, the key reason to be bullish on Tesla is the innovation edge.
A major catalyst for Tesla in the coming months is the unveiling of its robotaxis. The event is likely in October and Wedbush estimates that robotaxis and artificial intelligence (AI) technology “could put the company on the path to a $1 trillion valuation.” Further, Oppenheimer believes that a full self-driving technology can “potentially raise earnings per share by $1-$2 a year through the end of the decade.”
Tesla is also looking at a “new unboxed manufacturing process” that can slash production costs in half. The possibility of a low-cost car is exciting as it will help Tesla gain market share in emerging economies.
Li Auto (LI)
Li Auto (NASDAQ:LI) stock has witnessed a sharp correction dropping 43% year-to-date (YTD). I see this as a good buying opportunity with LI stock trading at an attractive forward price-to-earnings ratio (P/E) of 13.3.
There are two reasons for the deep correction in LI stock. First, the company lowered its growth expectations for the year. Further, the European Union has imposed tariffs on Chinese EV companies. The latter does not impact Li Auto currently with the EV maker focused exclusively on China.
In terms of positives, Li Auto ended Q1 2024 with a robust cash buffer of $13.7 billion. This provides the company with high flexibility for aggressive retail expansion in China. At the same time, Li can continue to invest in product development and technology. It’s worth noting that Li is targeting to launch its Level 3 self-driving technology next year.
It’s also likely that Li Auto will pursue international expansion in 2025. With the tariffs in Europe, the first international market for Li is likely to be in the Middle East. This is a potential growth catalyst in addition to expansion in the luxury EV market within China.
Panasonic Holdings (PCRFF)
Panasonic Holdings (OTCMKTS:PCRFF) stock is a massively undervalued name to consider. The EV battery stock trades at a forward P/E of 6.12 and offers a dividend yield of 2.8%. I would not be surprised if PCRFF stock doubles from current levels within the next 24 months. That potential earns it a firm spot on the list of undervalued EV stocks.
While sentiments are depressed in the near term, Panasonic has ambitious expansion plans. The company expects to quadruple its EV battery capacity to 200 GWh by 2031. At the same time, Panasonic has guided for EBITDA margin expansion during this period. I, therefore, expect steady growth coupled with cash flow upside.
Panasonic is also looking at manufacturing of solid-state batteries in the long term. However, the initial focus is likely to be on solid-state batteries for drones and factory robots. This is likely to be a big addressable market.
In terms of product improvement, the battery maker is targeting to achieve a 25% increase in battery energy density by 2031. To achieve this, Panasonic will be using nano-composite silicon anode material for EV lithium-ion batteries.
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.
On the date of publication, the responsible editor did not hold (either directly or indirectly) any positions in the securities mentioned in this article.