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In this article we will take a look at the 10 best battery stocks to buy now. You can skip our detailed analysis of the battery industry’s outlook for 2021 and some of the major growth catalysts for these stocks and go directly to 5 Best Battery Stocks to Buy Now.
Battery stocks are gaining investors’ attention worldwide as the world’s hunger for energy storage devices and a better battery technology becomes insatiable by the day. In the coming years, the demand of batteries is set to rise exponentially because of their applications in the EV industry, charging devices, computing, Cloud computing, AI and Internet of Things. Perhaps the biggest growth catalyst for battery stocks is the booming EV industry. The battery used in an EV is equivalent to 4,500 smartphones. And the EV market is just getting started. According to a report from EQM Indexes, the current market of electric and hybrid plug-in vehicles (PVs) has reached just 1% of its potential. Thanks to the growing market of energy storage, the lithium carbonate capacity is expected to grow by 600,000-800,000 tonnes over the next decade. Lithium, which is the key material used in batteries, is seeing a huge demand worldwide. Data from Orbis Research shows that the lithium-ion battery market is expected to reach $139.36 billion by 2026 from $29.86 billion in 2017, representing a CAGR of over 18%.
According to a report by the U.S. Department of Energy, analysts believe the mobility storage demands in 2030 will reach 0.8 to 3.0 TWh, driven by light EVs. China is the leading market of this type of energy storage. However, the report noted that Europe “unexpectedly” surpassed China in terms of the European xEV market (“x” representing electric vehicles across light-duty, medium-duty, and heavy-duty classes) in July 2020.
Best Battery Stocks to Buy Now
The battery market is far from its saturation. Despite the dramatic improvement in efficiency of the traditional lithium-ion batteries, hundreds of battery startups are striving to find new and better ways for energy storage. Companies are working on both traditional ways using silica anodes, solid-state electrolytes and advanced cathodes to increase battery efficiency and also tapping alternative technologies such as flow and zinc-air batteries to increase performance.
While choosing stocks to invest in, you should perform detailed research amid the increasing volatility in the financial markets, which is making it harder even for the smart money to sustain profits. The hedge fund industry that once used to post sterling gains is also feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
With this context and industry outlook in mind, let’s start our list of 10 best battery stocks to buy now.
10. Panasonic Corporation (OTCMKTS: PCRFY)
No. of Hedge Fund Holders: N/A
Panasonic is one of the best battery stocks to buy now. Earlier in 2021, Tesla renewed its contract with the Japanese company to continue buying its batteries until at least 2022. In January, Nikkei Asia Panasonic reported that Panasonic will produce cobalt-free batteries for Tesla’s EVs in two or three years. Removing cobalt from batteries would significantly reduce EV prices.
9. NIO Limited (NYSE: NIO)
No. of Hedge Fund Holders: 34
Nio is one of the most famous EV and battery companies in the world. The China-based company is pitching itself as a Battery-as-a-Service provider as it’s allowing customers to buy EVs without a battery and instead opt for a monthly subscription in exchange for freshly-charged batteries whenever needed. This helps the company sell its cars for a lower price than its competitors. Nio stock rallied earlier in March after Mizuho initiated the coverage of the stock with a Buy rating. The firm said that the company is becoming a leader in the Chinese “most prolific” Chinese market. The firm set a $60 price target for Nio.
The company is also getting the attention of the smart money, as 34 hedge funds tracked by Insider Monkey reported owning stakes in the company at the end of the fourth quarter, but down from 35 funds a quarter earlier.
8. Tesla, Inc. (NASDAQ: TSLA)
No. of Hedge Fund Holders: 68
Tesla is one of the best battery stocks to buy now. The company’s battery technology is extremely efficient and beats competitors by wide margins. Apart from EVs, Tesla is providing battery solutions for home and offices. Its Powerwall product for home acts as an energy source during outages. During its Battery Day event last year, Tesla unveiled its tabless battery technology that will dramatically reduce costs and increase range of its EVs.
According to our database, the number of Tesla’s long hedge funds positions increased at the end of the fourth quarter of 2020. There were 68 hedge funds that hold a position in TSLA compared to 67 funds in the third quarter. The biggest stakeholder of the company is Cathie Wood's ARK Investment Management, with 4.1 million shares, worth $2.9 billion.
"Tesla, Inc. designs, manufactures, and sells fully electric vehicles, solar products, and energy storage solutions. The stock increased on strong financial results, including profitability that exceeded market forecasts and strong growth across different geographies and vehicle programs. Indeed, in the third quarter, Tesla delivered almost 140,000 total vehicles – with strong unit level economics of 27.7% GAAP automotive gross profit margins – and another quarter of GAAP profitability and strong free cash flow (almost $1.4 billion). Recently, Tesla announced a record of over 180,000 total vehicle deliveries for the fourth quarter, effectively hitting its goal of 500,000 deliveries for the calendar year, a projection given before the COVID pandemic. In addition, we believe newly released full self-driving functionality should yield further improvements in unit economics and open exciting new growth opportunities. Lastly, Tesla joined the S&P 500 Index, a meaningful milestone that significantly expands the potential shareholder base.”
7. Energous Corporation (NASDAQ: WATT)
No. of Hedge Fund Holders: 5
Energous is a wireless charging company based in California. In February, the company partnered with Thin Film Electronics (OTCQB:TFECF) to simplify the integration of Energous WattUp RF wireless charging and Thinfilm solid-state lithium microbattery technology in wearable devices. The company is operating in the over-air charging market whose demand is set to soar in the future as consumers are starting to prefer wireless charging over conventional charging. The stock ranks 7th in our list of 10 best battery stocks to buy now.
With a $1.2 million stake in WATT, D.E. Shaw owns 652,260 shares of the company as of the end of the fourth quarter of 2020. Our database shows that 5 hedge funds held stakes in WATT as of the end of the fourth quarter, versus 6 funds in the third quarter.
6. Lithium Americas Corp. (NYSE: LAC)
No. of Hedge Fund Holders: 12
Lithium Americas ranks 6th on the list of 10 best battery stocks to buy now. The Canada-based company has 100% ownership of Thacker Pass lithium reserves in the U.S. which has 3.1 million tonnes of LCE at 3,283 ppm Li. The company is also operating the Cauchari-Olaroz reserves located in Jujuy Province in north-west Argentina. Investment firm Cower recently started coverage of LAC with a Market Perform rating.
As of the end of the fourth quarter, there were 12 hedge funds in Insider Monkey’s database that held stakes in LAC, compared to 3 funds in the third quarter. Axel Capital Management, with 780,000 shares of LAC, is the biggest stakeholder in the company.
Massif Capital, in their Q4 2020 Investor Letter said that they used covered calls to trim their positions in Lithium Americas Corp. (NYSE: LAC) since a covered call is a neutral strategy, the fund can only expect a minor increase or decrease in the short term for the company.
Here is what Massif Capital has to say about Lithium Americas Corp. in their investor letter:
"Selling covered calls on Lithium America (LAC) contributed roughly 0.75% to the portfolio’s quarterly return. The covered calls we sold were laddered and had increasing strike prices at points at which we would have trimmed the position for portfolio management purposes. The volatility of Lithium America’s equity made the calls a remunerative opportunity. We believe LAC may have a long way to go before it is appropriately valued, but we will continue to use covered calls to trim the position size should the opportunity present itself.
We first evaluated LAC in April of 2019 and invested in February 2020. At the time of our investment, a discounted cash flow analysis of the firm’s projects produced a $6.5 valuation versus the share price of roughly $2.8. Today, a year later, we think LAC is worth $18 per share. What changed over the last 12 months such that we revised our estimate up by 170+%?
1. The risk associated with project development, and 2. Time to production
LAC’s South American brine operation secured sufficient funding to bring the project to commercial production (financial de-risking). Their North American clay project received critical environmental permits and made substantial progress on the firm’s processing technology to turn lithium-sulfur into lithium salts (operational de-risking). These developments allowed us to lower the discount rate used on future cash flows to reflect where LAC sits in their development cycle. LAC is also one year closer to production, which means cash flows are accretive to the firm sooner.
In either scenario, a shared thread among most growing businesses is elevated volatility. Perhaps obvious, but again, consider the valuation ramifications. Discounted cash flow analysis treats volatility as risk, and value is subtracted from the business. Option analysis treats volatility as an opportunity and rewards the potential asymmetry. Growth investors frequently think in terms of options, traditional value more in terms of cashflows. Tangible asset businesses, which are historically the value investor’s domain, now need to be evaluated with greater attention being paid to both aspects of the companies future, with investors’ judgment determining where the majority of the weight lies in the final intrinsic value calculation.
We want to poise an open question: how comfortable are you valuing a capital-intensive, pre-revenue R&D operation, selling a compelling product into a market that does not yet exist (hydrogen producer, electric vehicle charging company) or an incumbent that fundamentally changed their business model without changing their product (green aluminum, or steel, a coal-burning utility that is now a fast-growing renewable utility)?”
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Disclosure: None. 10 Best Battery Stocks to Buy Now is originally published on Insider Monkey.