Stock markets are booming thanks to the tailwinds that the Federal Reserve and the White House have provided. The government deployed the heaviest artillery ever to reflate the economy after the pandemic. Judging by how strong stocks are, they may have overshot a bit. There are pockets of weaknesses this week, and consequently, some hot stocks have lost their momentum. Among them are the electric vehicle (EV) companies — and thus, there are EV stocks to buy.
Today’s note about EVs will not include giants like Tesla (NASDAQ:TSLA), Nio (NYSE:NIO) or XPeng (NYSE:XPEV). Those three already have good income statements going on. Therefore, the focus will be on companies with more hope than actual fundamentals. The bet is on their future successes.
With all of that in mind, investors should consider these speculative trades. This means that the investment size should be appropriate, especially in this environment. I prefer betting with conviction on the strong three, but these certainly make for exciting trading. The opportunities are real since the definition of pure potential.
Fed Chair Jerome Powell yesterday reiterated their commitment to the stimulus. Judging by his tone, they are still 100% supportive of stocks. That said, there is no doubt that the bulls are completely in charge on Wall Street. In fact, the S&P 500, the NASDAQ and the Dow Jones Industrial Average recently made new highs.
Where the Rotation Opportunity Lies
The small caps are lagging and that’s where most EV stocks live. There was a rotation trade going on between them and the NASDAQ. This last wave back into tech was a killer. The leaders in the Invesco QQQ Trust (NASDAQ:QQQ) rally this time were the giga-caps. They just are too big! They take away so much capital to rally that they robbed the small cups of all momentum. Wednesday indices were breaking records, yet the iShares Russell 2000 ETF (NYSEARCA:IWM) was down almost 2%.
This diversion will have to correct itself either by another round of rotation or a correction. And since there are no signs of weakness yet, we can assume that sentiment will flip back towards smaller stocks. Therefore, let’s discuss the opportunities in three EV stocks to buy ahead of this move. There is the bearish scenario that there won’t be a rotation this time. Equities could just correct in general.
This is by no means is a foolproof bottom. The whole market is heading into a diminishing returns situation. The tailwinds will end in spite of the assurances from Mr. Powell. Besides Wall Street looks months ahead, so it’s not about the date but rather the anticipation of it. Stocks will not wait for the announcement of the taper. My bet is that the freak out will happen way earlier.
That said, here are the three EV stocks to buy:
Now, let’s dive in and take a closer look at each one.
EV Stocks to Buy: Hyliion (HYLN)
HYLN stock has a good thing going for it. Those who believe in it, absolutely love it. There is no breaking their spirit and they will continue to average down in it forever. Hopefully this won’t take too long because it is now falling into support.
It has been rough for almost a year. It fell 5% on Wednesday, and it now sits 80% below its all time highs. There is light at the end of this tunnel because it has a double bottom lingering just below. This would be a good chance for the bulls to get back into it.
I would caution against adding to current positions because nothing has changed. It is still under fire from sellers with no major developments in its P&L. Technically, the breakdown started once it lost $18 per share. The bulls also lost another important line at $15. Consequently, the bulls are on their heels. They have had shining moments where they breach those lines, but failed to hold them. It is imperative that they break above $14 per share to rebuild some momentum.
Fundamentally, they have a great opportunity in an upcoming trend. Environmental, social and corporate governance (ESG) is a real effort this time and they can be an early mover in it. All manufacturers and governments are on the same page with that concept. Meanwhile, Hyliion also can make the hybrid concept of retrofitting current semis work. The Hypertruck ERX looks exciting and I can’t wait for them to bring it to market.
Onus is on management to excite the rest of Wall Street about that. They are executing on plans so it’s a matter of showing it in scorecards. Meanwhile, it’s a tough time for investors waiting for it to happen.
Plug Power (PLUG)
Stocks of companies betting on the future of alternative fuels are losing steam. PLUG stock is one that peaked in January. It has since lost 60%, but sits off its lows. There is technical hope coming but it will likely need more help.
The collective effort is to unseat the internal combustion engine (ICE). The battle for this supremacy is ongoing and it will last for years. ICE has been dominant for too long for it to lay down this quickly.
The current opportunity is more technical than fundamental. The financials are still in shambles company because it’s still in startup mode effectively. Therefore, judging it by its quality of income stream is unfair.
In turn, applying technical to young stock charts works better in this case. Short term, it is a falling knife since July. It could be heading into relief because it is heading into a place from which it bounced last time.
At or below $24 per share should be an opportunity to buy PLUG stock. This would be a trade that can also double as an investment longer term. It is important for us to discern the difference between the two. I would not add to existing position as this is a speculative bet.
EV Stocks to Buy: Fisker (FSR)
Mr. Fisker is at it again and this time FSR stock is the way to bet on him. The company is bringing the line of Ocean EVs to take a bite out of the electric opportunity. At this stage, it’s the hopes of future successes that are the drivers for the stock price. The fundamentals are still not there to provide lift.
This is an edge and a detriment. “Hope” is a powerful emotion that is hard to kill. This will provide support on bad days. Sadly, it didn’t work to help it hold $16 per share. Once it lost it, FSR stock fell into a bearish pattern targeting $13.50. Not always do the technical targets completely fill, but the bulls have to respect them.
Luckily, this means that there will be buyers lurking near there. Between $12 and $15 is a pivotal zone from April. It was a significant battle back then, so it will be support now if they needed it. The bulls will need help from the whole market. Any overall equity weakness would hurt the bottoming process.
These comments are more technical and short term than investors usually consider. But the long term reasons to buy these three stocks also works. Any of these three are indeed EV stocks to buy for a portfolio looking for an entry into the segment. Investors looking to average down better be sure of their decisions. What looks like a floor in a startup can quickly turn into a giant pothole.
On the date of publication, Nicolas Chahine did not have (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.
Nicolas Chahine is the managing director of SellSpreads.com.