EV stocks have been all the rage over this past year, with Tesla, NIO, and other extremely expensive names leading the upward charge. With the recent exhaustion in speculative growth’s rally, I think hungry investors ought to be careful with their favourite EV stocks as their share prices look to pull the brakes.
Make no mistake; the EV boom could be one of the defining trends of the 2020s. But as Warren Buffett recently put it in his annual meeting with Berkshire Hathaway shareholders, it can be tough to pick the winners that will profit most profoundly from emerging industry trends.
Heed Warren Buffett’s warning before you punch your ticket to any EV stocks
During the meeting, Buffett experienced a slew of defunct car companies from 1903. Each one was technically a play on the white-hot car industry of the time, but each of them didn’t amount to much in the way of long-term gains for investors who chose to speculate on them.
“There’s a lot more to picking stocks than figuring out what will be an incredible industry in the future,” said Warren Buffett in a warning to new investors.
Today, the “sexy” industry is EVs. And while it seems easy to spot the winners (many investors are betting on Tesla and NIO), I think it’s far too early to tell which of the growing number of EV stocks come out ahead over the next 10, 20, or even 30 years.
The valuation in the hottest of EV stocks like Tesla is beyond absurd. Just because Tesla is a leader in the EV space does not mean it’ll be a winner, even over the long term, as competition in the space takes it to the next level.
If you’re keen on betting on EV stocks but don’t want to pay up ridiculous multiples, there are better plays out there, and Canadians don’t even need to venture south of the border. One of the best EV plays right now, I believe, is a company that most wouldn’t even define as a company engaged in the manufacture of EVs.
Value meets EVs?
Enter NFI Group (TSX:NFI), a Canadian bus maker that I’ve previously referred to as a stealth way to play the EV space. The company builds energy-efficient buses, which could experience explosive demand in the early stages of this economic boom. Many nations have been pushing to reduce their emissions. President Joe Biden is spending big money on infrastructure and green energy, which could increase the demand for energy-efficient buses.
For now, NFI is looking to recover from its massive slump brought forth by many years of sluggish coach orders. With the economic expansion underway, I’d look for the cyclical to make up for lost time as governments push for carbon neutrality and more energy-efficient infrastructure.
NFI stock trades at a mere 0.7 times sales and is one of the lower-cost ways to play an EV boom without having to pay absurdly high double-digit price-to-sales multiples.
