These EV companies are positioned for steady growth and cash flow upside until 2030
Source: shutterstock.com/Alexander Steamaze
There can be temporary headwinds even for sectors that have multi-decade growth opportunities. These headwinds provide an opportunity for fresh entry for investors who have missed the previous sector rally. The electric vehicle sector has faced challenges in the form of intensifying competition, macroeconomic headwinds, and supply-chain concerns. Geopolitical tensions have also impacted growth, resulting in some of the best EV stocks trading at a valuation gap.
It’s, therefore, a good time to consider exposure to some of the best EV stocks. I have not discussed Tesla (NASDAQ:TSLA) as it’s an obvious choice for investors bullish on EV adoption growth. I have focused on another quality EV maker, a lithium play, and an EV battery company. This would create a diversified EV portfolio that’s not just focused on the car maker.
Let’s discuss the long-term reasons to be bullish on these EV stocks.
Albemarle Corporation (ALB)
From a valuation perspective, Albemarle Corporation (NYSE:ALB) is among the most attractive EV stocks to buy. Lithium is a proxy play for sustained growth in the EV industry, and Albemarle has ambitious growth plans.
After a correction of 40% in the last 12 months, ALB stock trades at a forward price-earnings ratio of 6.1. The downside seems capped at these valuati,ons and the upside potential in the long term is significant.
It’s worth noting that Albemarle has strong fundamentals. Further, even with the plunge in lithium prices, the Company expects operating cash flow of $700 million. Once lithium trends higher and margins expand, Albemarle is likely to be a cash flow machine.
From a lithium conversion capacity of 200ktpa in 2022, Albemarle expects to triple capacity to 600ktpa by 2027. This will translate into strong revenue growth and cash flow upside. Therefore, the fundamentally strong dividend-paying stock is among the best EV stocks to buy now.
Li Auto (LI)
Li Auto (NASDAQ:LI) is another undervalued high-growth stock that’s worth buying at current levels. Even after an upside of 44% in the last 12 months, LI stock trades at a forward price-earnings ratio of 23.9.
I must also point out that for Q3 2023, Li Auto reported free cash flow of $1.8 billion. This would imply an annualized FCF potential of $7 billion. Further, the Company ended the last quarter with a cash buffer of $12.13 billion. A market valuation of $33 billion, therefore looks attractive. I would bet on multibagger returns for LI stock in the next 24 months.
For 2023, Li Auto reported stellar deliveries growth of 182% on a year-on-year basis to 376,030. I expect deliveries growth to remain robust this year. Commercial deliveries of Li MEGA will commence in March anareis one factor that will support growth. Further, the Company has been in an aggressive retail expansion mode within China. The possibility of international expansion this year is another possible growth catalyst.
Panasonic Holdings (PCRFY)
Panasonic Holdings (OTCMKTS:PCRFY) is another EV stock with high potential that trades at a significant valuation gap. At a forward price-earnings ratio of 8, PCRFY stock looks attractive for fresh exposure and offers a dividend yield of 2.3%.
As Panasonic expands capacity in the coming years, I expect healthy revenue and cash flow growth as Panasonic expands capacity in the coming years. To put things into perspective, Panasonic expects to boost annual EV battery capacity to 200GWh by 2031. This would imply quadrupling of capacity as compared to the last financial year.
Panasonic is also an innovator. Aggressive expansion and an innovation edge is likely to ensure that the Company maintains or potentially gains market share. Talking of innovation, the Company expects to boost battery density by 20% by 2030. Further, Panasonic is working towards the launch of solid-state batteries for drones by 2029. With all these positives, PCRFY stock is poised for sustained upside.
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.