Investing in the green economy? While utilities and power producers are often held up as exemplary means of wealth creation in this space, the electric vehicle industry also holds gems of its own. This week saw a relatively unknown ticker on the NASDAQ, SPI Energy, gather incredible gains of +4,300% in a single day of trading.
While this is clearly a freak event driven by the intense 2020 markets, other opportunities exist for the lower-risk investor looking to the long term. Let’s examine some of the ways in which the lower-risk investor may wish to navigate a high-growth sector against the backdrop of a frothy stock market.
Looking for a pullback in a market leader?
Tesla (NASDAQ: TSLA) has seen its share price wobble a couple of times of late. First was when the dual stock split with Apple caused a miniature selloff that turned into a market-wide avalanche. And the second time was this week, when the much awaited Battery Day turned out to be a little, well, flat. Wednesday saw Tesla down 10%. And though it bounced 2.5% the next day, the week to date put Tesla down almost 8%.
Investors keeping tabs on Tesla are used to a bit of hype by now. But the problem with hype is that it cuts both ways. While getting investors stirred up can generate momentum, it can also lead to disappointment. Battery Day was much-trumpeted, dominating EV discussion boards and auto industry think pieces. But Tesla is now negative by 3.2%, throwing a roadblock in its 774% 12-month bull run.
An alternative stock for EV upside
Could the change in fortunes be temporary? Investors looking to own Tesla shares should wait for more of a pullback. This name could have at least 16.3% downside. Names such as Magna International (TSX: MG)(NYSE: MGA) satisfy the same growth industry thesis, but without the massively hyped share price. Consider Tesla’s P/B of 37, versus Magna’s 1.3. Magna also pays a dividend, yielding 3.5%.
There are other ways in which Magna could appeal to the lower-risk shareholder seeking exposure to the EV boom. Magna has a deal in place to supply the Chinese market with electric vehicles, for instance. Magna’s growth in Asia is key to its practical appeal in a stock portfolio. On top of this, it’s also intrinsically good value for money: Magna’s P/B of 1.3 still undercuts the market.
Last year, I summarized Magna by saying, “Magna International’s global reach will not only continue to rake in the dollars, but also offers geographical diversification, straddling a number of key markets. Its dividend, paid quarterly, is substantial enough to be a buying point and is well covered by cash flows.” With a discount of 29% off its future cash flow value, Magna is also a cheaper option than its NASDAQ competition.
In short, Magna could have what it takes to satisfy an EV growth thesis. Investors should weigh up whether the momentum of Tesla counts for more than the long-term wealth creation potential of Magna and invest according to their financial goals.
