Lucid stock: Why one strategist is steering clear
It's a tale of fossil fuels versus electric vehicles in the latest edition of Good Buy or Goodbye, featuring Robert Schein, Chief Investment Officer at Blanke Schein Wealth Management.
Schein is buying Occidental Petroleum (OXY), citing an attractive valuation and that "OXY can do well even if oil doesn't do well." Schein also says buying the stock means "you're investing with Warren Buffett," given his significant stake in the company. He does however warn that a recession could derail his thesis.
One stock Schein is steering clear of is Lucid Group (LCID). Schein points to the overall difficulties the EV industry is facing as one of the reasons why he isn't buying the stock, as well the recent departure of the company's CFO. He also thinks the EV maker has weaker financials and a high cash-burn rate, though he does say the stock could rise if there is short covering activity.
Click here to see more Good Buy or Goodbye or you can watch this full episode of Yahoo Finance Live here.
Video Transcript
[MUSIC PLAYING]
JARED BLIKRE: It is a big noisy universe of stocks out there. Welcome to Good Buy or Goodbye, brought to you by E TRADE from Morgan Stanley. Our goal? To help cut through that noise and navigate the best moves for your portfolio.
Today, we're looking at two sides of the auto energy space with focus on oil and EVs. Oil futures enjoying the biggest weekly gains in two months, whereas EV makers, they are slipping on some geopolitical trade tariffs, as well as weakening demand. So what's the best way to play it? I am here now with Robert Schein, Blanke Schein Wealth Management.
So your stock to buy here is Occidental Petroleum. And well, we can see this has been a choppy year. This is year to date, we've seen some highs and lows here. Tell us about this pick.
ROBERT SCHEIN: Yeah, we like Oxy. It's clearly been consolidating as we've seen oil, but oil is now consolidated. We believe we think the setup for 2024 is going to be better for oil. But that being said, Oxy can do well even if oil doesn't do well.
They recently just had another basically acquisition earlier this year and that's going to add to, sort of, their land grab, if you will, the real estate of what they own here, the Permian base here. But we saw, sort of, a double bottom in the chart earlier on Oxy.
JARED BLIKRE: Sure.
ROBERT SCHEIN: But at the same time, you're also looking at your investing with Warren Buffett, right, 28%. Now, he just announced the total accumulation of shares. So with the consolidation, with the setup for next year of oil, we believe and the geopolitical tensions, I think Oxy is the way to go.
JARED BLIKRE: Yeah, I've read reports about the CEO jet setting to Omaha to speak with the Oracle himself, but what do you like about this stock? What else besides the attractive valuation?
ROBERT SCHEIN: Well, again, the two-year consolidation right now.
JARED BLIKRE: OK.
ROBERT SCHEIN: So we haven't seen this right now. And the risk-reward, right, moving forward. And then also, if you think about it, you want to broaden out your portfolio. We're seeing that the markets are now continuing to broaden out.
Sectors like energy haven't performed this year. So we believe that reallocate your portfolio, don't just own the Magnificent Seven. Sell into the strength and then rebalance into some sectors that we believe could actually do quite well next year.
JARED BLIKRE: All right, and on the inflation front, breakevens tend to trade with oil and I'm getting into some bond wonky stuff that we don't have to. But definitely, oil is on the mind of investors inasmuch as it affects the price of the pump. So how does all this correlate?
ROBERT SCHEIN: Yeah, I mean, the sensitivity, the risk moving forward would be ultimately the geopolitical or the global environment of the consumer, right? So if the US consumer and the global consumer, sort of, just run out of gas, if you will, for 2024 and all of the Fed rate hikes start hitting the consumer pocketbook, that could slow down consumption. So that is a risk out there.
As in investing, there's always the risk, the other side of the trade. But I think long-term investors need to look at a company like this, invest with Warren Buffett, I think you'll be just fine.
JARED BLIKRE: All right, how does investing with Warren Buffett go wrong? I'm seeing the recession, the big R-word right there.
ROBERT SCHEIN: Yeah, exactly what we just described is the recession risk moving forward.
JARED BLIKRE: All right, well, let's move on because at the other side of the scale, we have Lucid Group. This is one stock that you're avoiding. Just look at the chart here we've had. It's been very volatile. And I think from the ultimate highs, it's down just an incredible percentage.
ROBERT SCHEIN: Yeah, this one's a good buy, meaning we don't own it. We've never owned it for clients. Again, we like the energy space.
The EV space, this is a tough one. Right now, even if you look at the stock, there's a lot of negative news surrounding it. Number one, the CFO jumped, you know, unexpectedly earlier in the last month.
We also have the same time, the EV slowdown that you're seeing. And so the production, sort of, Lucid, right, they were going to deliver 10,000 units and they had to walk that back to about 8,500. So now they're also not beating or meeting to their expectations.
JARED BLIKRE: And we got the burn rate.
ROBERT SCHEIN: And their cash burn rate, they could be out of cash within a year this time next year. Ultimately, the Saudi government is their backer at $1.8 billion earlier this year, but how long does that last? And again, your competitor, your last to the party. It could be a great product, if you will, but it's not a great stock to own. And that's one of the things where if you've got Tesla, the 800-pound gorilla really hanging out there, it's going to be hard to keep track.
And then the CFO even said, hey, listen-- or the CEO said, listen, we don't have the entry level in play until 2030. So that's also going to help them if the consumer is hit and they're still looking for the EV space. They still have to stretch high for the Lucid high-end cars. So for 2024, it's a good buy.
JARED BLIKRE: All right, now how does this reverse to the upside here? How does Lucid become a good potential buy?
ROBERT SCHEIN: Well, you did see a little bit of reversal in the last few weeks and it's short covering.
JARED BLIKRE: Yeah.
ROBERT SCHEIN: Right, and so, again, if you're in that space and you like, sort of, thinly-traded markets with regards to maybe areas where people just pile in and try to drive up the stock for the day.
JARED BLIKRE: So short-term punter maybe, but not for the longer term.
ROBERT SCHEIN: It's not for the faint of heart and it's not for the true investor. If you're a serious investor, you're going to look towards other sectors and other higher quality companies.
JARED BLIKRE: Well, if the only thing I can think of to turn a company around is a short covering rally and perhaps more government handouts, I don't know about that one. But to recap, all right, you're telling investors to buy Occidental Petroleum. That's based on the stock's attractive valuation, the reward potential, and supply chain and inflation headwinds turning into tailwinds in the new year.
And on the other side here, you're saying avoid Lucid Group because of its weak financials, its cash burn, and potential difficulties facing the entire EV industry. Robert Schein, thank you for stopping by. And thank you for watching Good Buy or Goodbye.
