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During the Dot-com bubble of 2000, stocks in the technology, media, and telecommunication sectors plunged. Similarly, banking and financial sector stocks collapsed during the financial crisis of 2007-08. However, be it technology or the financial sector, names that emerged from the crisis grew bigger and stronger. These are extreme examples, but they hold true for corrections within a bull market.
Stocks of a particular sector can correct by 30% to 50% from highs before making a stronger comeback. That overview is to underscore my point that there are EV stocks for multibagger returns worth buying now. The EV industry faces challenges related to slower adoption, macroeconomic concerns and intense competition.
During this period, weak companies will perish. On the other hand, fundamentally strong companies that are innovators will survive and grow stronger. Therefore, if there was a time to buy EV stocks, it’s now. This column discusses three EV stocks for multibagger returns in the long term.
Tesla (TSLA)
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Tesla (NASDAQ:TSLA) being written off by analysts or investors is nothing new. However, like multiple instances in the past, I believe Tesla is poised for a comeback. Year-to-date, TSLA stock has declined by 27% on the back of weak quarterly numbers. The negative catalysts are macroeconomic headwinds and intense competition.
I would like to point out that there might be multiple surprises on the cards in the next 12 to 24 months. It’s expected that Tesla will commence production of a $25,000 EV in June 2025. Further, in May 2023, Elon Musk indicated that Tesla is “working on two new products, with the potential for combined sales of 5 million vehicles a year.” With innovation being the key differentiator, Tesla will likely make a strong comeback.
It’s also worth mentioning that Tesla has yet to explore some big markets. Entry into India is in the cards, and Southeast Asia is another big market. I, therefore, expect long-term sales and profitability to remain in an uptrend.
Li Auto (LI)
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Li Auto’s (NASDAQ:LI) story has been of stellar growth coupled with financial prudence. While EV stocks have struggled, LI stock has delivered returns of 13% in the last 12 months. Further, the stock seems deeply undervalued at a forward price-earnings ratio of 20. In my view, the stock is poised to be a 10-bagger from current levels in the next five years.
Talking about financial prudence, Li Auto ended Q4 2023 with a cash buffer of $14.6 billion. The company has, however, refrained from global expansion. Instead, Li Auto continues to focus on China, building a strong retail network and charging infrastructure.
Additionally, with a focus on operating efficiency and vehicle technology, Li has managed a robust vehicle margin of 22.7% for Q4 2023. The company continues to invest in the launch of new models, a catalyst for deliveries growth.
In March, the management said they “put excessive emphasis on sales volume and competition.” This distracted them from the core objective of “creating value for [their] users and driving operating efficiency.” With a renewed focus on the core mission, Li Auto seems to be back on track for value creation.
Panasonic Holdings (PCRFY)
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Among EV battery stocks, Panasonic Holdings (OTCMKTS:PCRFY) is a long-term value creator. PCRFY stock has remained subdued in the last 12 months and trades at a deep valuation gap. My view is underscored by the fact that the stock trades at a forward price-earnings ratio of 7.3. I expect a strong breakout on the upside once sentiments reverse for the industry.
In terms of growth, Panasonic is targeting to quadruple battery capacity to 200 GWh by 2031. That would set the stage for steady revenue growth coupled with EBITDA margin expansion. Of course, growth plans have been delayed due to relatively slow industry growth. However, that factor is discounted in the stock.
Another point to note is that Panasonic has been investing in innovation. That will ensure the company maintains or gains market share by the end of the decade. As an example, Panasonic partnered with Sila Nanotechnologies to purchase next-generation nano-composite silicon anode material. By using this, Panasonic expects to achieve a 25% increase in battery energy density.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
