Almost every stock with a great deal of exposure to the EV market seems to be growing like a velvet plant. Needless to say, we are experiencing an EV rush, one that will most likely end up as a bubble.
There’s an ‘EV Rush’ out there, ladies and gents. Companies are digging through earth to get a slice of the action by giving themselves enough exposure to the EV market as possible.
Unsurprisingly, investors and traders are not missing out of the action, as a matter of fact, they were at heart of the action in the very beginning. And the action began with Tesla.
I loved and followed Tesla way before it became the leader of a ‘crazily’ overvalued market. And I still do love the company. But you can’t look at Tesla’s current P/E ratio that’s over 1,000 and say that’s normal, even for overvalued stocks.
Amazon has a P/E ratio that’s currently under 100, Apple under 40, and even madly overvalued Nvidia has a P/E ratio that’s under 100. Facebook’s is under 40, Alphabet under 40 and Microsoft’s is also under 40. These are companies that we considered overvalued a year ago, and Tesla has a P/E ratio more than 10x theirs.
Now that put things in perspective.
I must add that when Tesla grew crazily back in February, I was quick to recommend taking profit, stay on the side and watch as things unfolds.
Perhaps that recommendation meant that some of my followers missed out on some of the Tesla action. But if I can go back in time, I do make the same recommendation without blinking.
Didn’t you momma tell you not to take a ride on a vehicle you don’t understand? Mine didn’t, but I learnt not to.
As things get crazy, sometimes it is wise to step back, understand the craziness and jump back in, fully equipped for what may come. That’s exactly what I did: Understand the craziness. And hence, the wisdom in the ‘step-back-from-Tesla recommendation’ in February.
Is Tesla going to crash or continue to rise? Here’s what I think.
From stepping back and understanding the craziness, I saw the EV play better.
And here are three tips to help you get fully equipped to confront the craziness of the EV market, and come out on top:
1. Invest in companies with substantial value
Amidst the overvaluation, there are really good EV stocks like Tesla that have enough intrinsic value to survive the impending EV bubble. In other words, when it all comes crashing down, companies with enough intrinsic value will standout, and grow beyond the bubble.
I didn’t touch or recommend Nikola’s stock, not even for one day. Not because I foresaw their stock been battered by the allegations of fraud, but because Nikola is an EV company, that has not put one electric vehicle in the market.
The company doesn’t even have a product in the market, how can I assess how good their product is and consumers’ reception of their product. They are still unveiling concept trucks and don’t even have a mass production factory.
In short these guys are not even in business, and it’s not like they are a private company. I expect companies to prove their model as a private company, get it working before considering going public. Because public companies have to perform. They have to be selling stuff, generating revenue.
Guess what Nikola’s Q3 2020 revenue was.
$0.00, absolute zero.
If you want to come out on top in the EV market, you be wise to stay clear of this kind of companies, as an ‘investor’.
Right now, Tesla and General Motors are the only electric vehicle companies that I recommend investing in for the long-term. Trade the rest if you may, but invest in companies with a proven track record. And right now in the EV space, it’s Tesla and General Motors that gets the nod.
2. Trade the news
If the news of one EV Company, Tesla, getting into the S&P 500 can drag the entire EV market upwards, what a market it is: A market that feeds on the news.
This is a trend that has been going on for months now in the EV space, a positive news about an EV company that’s on the spotlight, seems to drag the stock of that company upwards along with that of other closely related EV companies.
If there’s a positive news about Tesla that drags its stock northward, it tends to drag that of Nio’s along, in most cases, in recent months.
Although the movement is often temporarily and is largely influenced by traders’ activity, if you are a trader, you can capitalize on this trend.
Trading the news is a strategy that works for quite a lot of equities, although it’s a short-term strategy, it works.
This investing strategy cannot be done passively; trading is best done actively. You got to have the time for it, keep your ears down waiting for a major news, and when it comes, you jump on it as fast as you can, and get out in the same fashion after taking profit.
I’m not a trader, I see myself as an investor; there’s a fine line between trading and investing. Where trading is a short-term thing, investing often takes the long/medium term highway.
Nonetheless, there are traders who make a lot of money making short-term plays and trading on the news. It’s a highly risky play that works really well when it does, and if you can stomach the risk, you could give it a try.
If you trade on the news, then, you can afford to buy stocks of EV companies without much intrinsic value, like these 6 EV penny stocks that grew at least over 100% in a matter of days.
3. Invest in companies selling ‘the shovels’
I presume you are familiar with the 1849 California Gold Rush story. The people who made the most money back then were the merchants who sold shovels (and pickaxes, tents, jeans and other essential supplies). And the average miner who suffered enormously through hard labour, came out way short when compared to the average merchants.
This may not be exactly the same for the EV Rush, however, companies that offer essential supplies and services revolving around electric vehicles, will also make a lot of money.
With the elections done and dusted, I’m pretty sure that Joe Biden is going to be the next president come January 20, 2021. And with that I’m even more confident that the world-wide adoption of electric vehicles will be speed-up.
In the next five years, there is going to be a massive demand for electric vehicles and that demand will fuel the increasing demand for EV essential supplies and services, such as lithium for batteries and charging station.
Lithium stocks, EV battery stocks, EV power components stocks and charging station stocks would be really good investment in the EV space. And one can approach them from both a short-term trading strategy and from a long-term investment strategy.