One of the biggest success stories in the market over the past several years is the amazing performance of electric car pioneer Tesla Motors (Nasdaq: TSLA). That company's shares have delivered a mighty 625%-plus gain over the past 12 months, and the stock has shown no real signs of slowing down.
Yet many traders and investors I know have already made big money in Tesla, and they're now looking for peripheral electric car plays with the potential for Tesla-like returns.
Enter Kandi Technologies (Nasdaq: KNDI).
This China-based company is a maker of vehicles such as ATVs, motorcycles and other small utility vehicles, including electric cars. And while its vehicles don't approach the high-tech, luxury level of a Tesla Model S, they are in demand in China, and that demand is expected to continue in the years to come.
According to a recent SEC filing, which was actually a Q-and-A session from the company's December shareholder meeting, Kandi, which is a joint venture with China manufacturer Geely, said it expected to deliver some 2,800 electric vehicles in the fourth quarter of 2013. That's huge when compared with the 3,915 vehicle deliveries the company had in all of 2012.
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Kandi CEO Hu Xiaoming said in the filing, "In 2014, we expect our EV business may surpass our legacy go-cart business and become a major revenue generator for the company."
|While Kandi's vehicles don't approach the high-tech, luxury level of a Tesla Model S, they are in demand in China, and that demand is expected to continue in the years to come.|
Well, those expectations got a boost courtesy of news that the company was expanding its electric car rental/sharing service in China. Management said it was planning to expand operations into both Shanghai and Beijing, and though the company offered no dates for the rollout, the smart money certainly seemed pleased by the news. KNDI gained 16% Monday, making its highest close since being listed in 2006.
Another positive development for KNDI came from China's plans to reduce its cutting of government subsidies to electric car buyers. China had planned to slice subsidies by 10%, but now will only reduce them by 5% this year. The government also said it will only reduce the subsidy by 10% in 2015 rather than the planned 20%, and the subsidy program was extended beyond 2015.
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As a trader, I think there's ample reason to believe that the big run higher in KNDI is going to continue well into 2014. The stock recently hit another new 52-week high, and its big breakout comes on strong volume.
Technically speaking, this is one of those stocks that you ride the momentum on for as long as you can, and then get out. Yet fundamentally, this is a stock with a confluence of positives that could keep its price going and going for many more months (or even years) to come.
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Finally, while I think KNDI shares will be strong in the short and intermediate term, the big surge in the stock also means that the fast money can move out and take profits if there are any negative developments.
To protect yourself on the downside if this happens, make sure you have a tight stop-loss order in place along with your buy orders. My preferred stop-loss percentage is about 8% below my purchase price, but if you aren't willing to lose that much in a pullback, you can set your stop-loss tighter. Just make sure you don't set it so tight that you don't allow for normal fluctuation in the shares.
Action to Take -->
-- Buy KNDI at the market price
-- Set stop-loss at $15.13, approximately 8% below recent prices
-- Set initial price target at $21.38 for a potential 30% gain in six months
This article was originally published at ProfitableTrading.com:
Electric Vehicle Stock Could Make You Big Money (and It's Not Tesla)