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Why Long-Term Investors Should Buy Nikola After Its Pullback

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·4 min read
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In my last column on Nikola (NASDAQ:NKLA) stock published on July 17, I advised investors to wait for the start-up’s shares to fall to $30 before buying them. That turned out to be good advice, as Nikola stock did fall slightly below $30 on July 24 before surging to $46 on Aug. 13.

Red Hot Shares of Nikola Stock Are About to Start Losing Steam
Red Hot Shares of Nikola Stock Are About to Start Losing Steam

Source: Stephanie L Sanchez / Shutterstock.com

Now that NKLA stock pulled back to $34, the most recent decline has created another decent buying opportunity, as Nikola’s recent deal to provide 2,500 electric garbage trucks to Republic Services increased my confidence in the truck maker.

Further, the company has multiple, upcoming, positive catalysts that look poised to meaningfully boost Nikola stock over the medium term to longer term.

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Nikola’s New Deal

Nikola announced that it received an order for 2,500 battery-electric garbage trucks from Republic Services. Under the deal, Republic has the option to buy another 2,500 battery-electric trucks from the company.

In the wake of the announcement, I agree with the sentiment expressed by Deutsche Bank analyst Emmanuel Rosner. According to Barron’s, the analyst believes that the deal “validates the company.” Indeed, Republic Services would not have placed such a huge order (which Nikola Chairman Trevor Milton has said is binding) unless it has a great deal of confidence in Nikola and its technology.

Moreover, I think there’s a very good chance that Nikola will obtain many more such orders in the mid- to long-term.

As I’ve written previously, battery-electric trucks can’t transport heavy loads for long distances because they require very large batteries to travel for a long time. And the trucks’ need to recharge for hours after traveling for several hundred miles also prevents them from being used for even medium-distance jobs. But, rendering these disadvantages moot, garbage trucks mostly only travel within a few towns during each of their outings.

Further, as Barron’s pointed out, since garbage trucks do travel primarily on local streets, communities are quite sensitive about the air pollution they cause. Given all of these points and Nikola’s leadership position in the battery-electric truck market, I expect the company to get orders for tens of thousands of additional battery-electric garbage trucks within the next year or two.

Additional Catalysts for Nikola Stock

During a recent virtual presentation at the JPMorgan Virtual Auto presentation, Nikola CFO Kim Brady listed many upcoming long-term positive catalysts that should lift Nikola stock.

Among those are the unveiling of the prototype of the Nikola TRE truck which, according to Brady, is expected to occur by the end of this month. Ultimately, Nikola is looking to launch both battery-electric and fuel-cell versions of the TRE. The trucks are expected to be hit the market by the end of 2021, Brady reported.

Also by the end of 2021, Anheuser-Busch InBev (NYSE:BUD) is expected to receive the company’s Nikola Two hydrogen fuel cell truck and Nikola’s plant in Arizona is slated to be up and running.

Finally, Brady said he expects hydrogen costs to drop as production of the chemical increases, and, according to Seeking Alpha, he reported that Nikola is seeing strong interest in its products from potential customers.

The Bottom Line on Nikola

Nikola’s deal with Republic Services validates the company and its technology. As a result, I expect Nikola to announce many new orders for its garbage trucks within the next year.

Meanwhile, Nikola has multiple, positive catalysts that should lift its shares over the next 12 to 18 months. In addition to the likely milestones cited by Brady, the company will probably announce multiple new partnerships with truck manufacturers within that time frame.

In the bigger picture, I continue to believe that many companies will, like Anheuser-Busch and Republic Services, buy fuel-cell and/or battery-electric trucks to show consumers that they care about the environment in general and reducing their carbon emissions in particular. Over the longer term, Nikola looks well-positioned to exploit that trend.

Given all of these points, I recommend that longer-term investors buy Nikola stock.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Larry has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.

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