Last year, the pandemic created panic and led to some crazy rallies. Like every crisis, the stock market plunged and gold price surged, as investors consider it to be a hedge. But even gold is losing its charm as an attractive hedge. Some investors, especially hedge fund investors, got interested in Bitcoin late last year and poured in billions of dollars. Bitcoin surged from $14,880 to over $50,000 between October 10, 2020, and January 10, 2021. But Bitcoin and gold have many loose ends and don’t have any fundamental growth. I would follow Tesla founder Elon Musk and place my bet on electric vehicles (EVs).
Why Warren Buffett despises Bitcoin and gold
The most celebrated value investor, Warren Buffett, is not known for taking unreasonable risks. Most of his bets are backed by fundamental reasoning and long-term growth. He invests in assets that can grow on reasonable grounds. He despises gold, because it has limited usage, and all it does is stack up in the locker. As for investing in gold, he said, “Owners are not inspired by what the asset itself can produce — it will remain lifeless forever — but rather by the belief that others will desire it even more avidly in the future.”
Hence, when Berkshire Hathaway invested US$564 million, less than 2% of his portfolio, in Barrick Gold, Buffett followers came rushing to protect his stand. This investment was probably done by investment managers. Moreover, the investment was in the mining stock and not in the commodity. Unlike gold bricks, Barrick Gold stock pays dividends.
Just like gold, Buffett despises Bitcoin and said it was “probably rat poison squared.” His partner Charlie Munger calls trading in cryptocurrencies “dementia.” They are right on their front, as it is an unregulated digital currency that has no physical intrinsic value. Buffett said, “It’s a gambling device … there’s been a lot of frauds connected with it. There’s been disappearances, so there’s a lot lost on it. Bitcoin hasn’t produced anything.”
Until there are regulations and accountability, any Bitcoin rally won’t be sustainable. Even if you want to get exposure to Bitcoin, invest in a graphic card company like Advanced Micro Devices that powers crypto mining. At least there, you have a product that has many productive uses. Even Buffett indirectly invests in the blockchain technology on which Bitcoin works.
Follow Elon Musk and invest in EVs
Given the lack of use of gold and the gamble in Bitcoin, I would rather place my bet on Elon Musk, who is looking to shape the future of green automotive. For decades, Elon Musk’s Tesla has been making cars. He was the early adopter of the EV concept. Now is the time to monetize this trend and make EVs a household product.
Tesla is one expensive stock trading close to $850. You don’t need Tesla to ride the EV wave. One Canadian stock at the centre of the EV revolution is Magna International (TSX:MG)(NYSE:MGA). The company is one of the largest auto parts suppliers, and it has now ventured into the future of automotive, which is EVs and self-driving cars. Magna is also a third-party manufacturer of choice for EV companies.
Unlike Tesla, Magna has a low-risk business model. The biggest risk with EVs and futuristic self-driving cars is the risk of product failure after all the effort that went through in research and development. Tesla holds that risk, but Magna diversifies this risk. Magna is working with several companies on their futuristic automotive projects. Some of the big names in its client list are Alphabet’s Waymo, Sony, and Apple.
If even one of these projects succeeds, Magna’s stock could grow by leaps and bounds. Today, Apple rules the premium smartphone market and gives volumes of business to its suppliers. If Apple succeeds in the EV space, Magna could probably be the next Foxconn by the end of 2030.
Investor corner
Magna stock has already tripled from its March 2020 low and has the potential to grow by leaps and bounds in this decade. Unlike Bitcoin and gold, Magna’s stock price rally is based on fundamental growth rather than speculation.
