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2021/06/28

The Safest Electric Vehicle Play

 
Profit Trends

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Editor's Note: In 2013, Engineering Strategist David Fessler recommended Tesla (Nasdaq: TSLA) when it traded for just $8 (split-adjusted).

Now, eight years later, the company has exploded in value and is one of the most well-known electric vehicle (EV) makers today.

However, the EV market as a whole has also exploded in the last eight years. It seems like a different automaker is releasing a new electric model every week!

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The Safest Way to Play the Electric Vehicle Sector

Matthew Carr | Chief Trends Strategist | The Oxford Club

Matthew Carr

Our job here is to cover trends.

Particularly ones that we think will be profitable for investors...

Heck, it's all spelled out in our name: Profit Trends.

But one of our secrets is that many of the trends we cover aren't really that "new."

They've existed for hundreds or even thousands of years - like cannabis and psychedelic medicine.

The difference is that these trends are finally starting to disrupt multitrillion-dollar industries.

The other secret is that to stake a claim in the hottest sector or the biggest trend, investors don't need to take on excess risk with super-speculative plays. We're always fans of pick-and-shovel opportunities, no matter the sector.

Especially when that company has the vision to reinvent itself.

Edison's Folly and Vision

"The great secret of doing away with the intermediary furnaces, boilers, steam engines and dynamos [to produce electricity] will be found, probably within 10 years."

The great American inventor Thomas Edison made that enthusiastically bold claim back in 1884.

The man was driven by electricity's potential.

In 1899, a mere four years after the introduction of the gasoline-powered car, he began working on his idea for an electric vehicle (EV). Edison believed EVs had the potential to be more economical than gas-powered vehicles.

So he developed a nickel-alkaline battery for EVs that was used by electric delivery trucks.

But Edison's dream of an electric future was undone by Henry Ford's Model T in 1908. No EV could compete with the inexpensive, gasoline-powered vehicle that rolled off Ford's assembly line.

And the problems Edison identified more than a century ago - such as the expense and weight of batteries as well as the issue of maintaining a charge for long journeys - have plagued the EV industry ever since.

Yet, it hasn't stopped companies from trying to solve these problems. And it hasn't prevented investors from turning EV makers into household names.

We all love innovations and are willing to pay a premium for them.

Elon Musk's Tesla (Nasdaq: TSLA) has a market cap 10 times that of Ford Motor Company (NYSE: F). And that's despite the fact that Tesla produced a few more than 500,000 cars in 2020 while Ford sold 4.2 million vehicles last year.

Then there's Fisker (NYSE: FSR), Li Auto (Nasdaq: LI), Lordstown Motors (Nasdaq: RIDE), Nikola (Nasdaq: NKLA), Nio (NYSE: NIO) and Workhorse Group (Nasdaq: WKHS). These names - and shares - have been tossed around like hot potatoes each week by Wall Street talking heads and armchair analysts.

As Edison discovered more than a century ago, EVs are a volatile business. But he also identified the safest and surest way to play the sector...

 

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The Safest EV Double

Albemarle (NYSE: ALB) has been in business since 1887.

But like most companies that have been around for nearly 150 years, it's undergone a series of major evolutions and image changes.

You see, it began as a quaint paper manufacturing company.

This was its bread and butter for 75 years.

Then, in 1962, it got into the gasoline and specialty chemicals business by acquiring Ethyl Corporation - a company 13 times its size. And over the next several decades, this transformed its identity. The paper business was shed in favor of aluminum alkyls, bromine and oil field chemicals.

The next evolution came in April 2011 when Albemarle announced that it had developed a proprietary technology for lithium extraction from brine. This meant that it could produce lithium carbonate from its bromine brines in Arkansas. The company highlighted the need for domestic production of lithium, as 70% of demand was being met by foreign exports.

Albemarle's announcement came almost exactly one year after Tesla announced in April 2010 that it was taking orders for its new Model S sedan. And that production for these would start in 2011.

At the time, Tesla was a maverick. It was the only producer of highway-capable EVs in Europe and North America.

And here, Albemarle began its next evolution. Its fate intertwined with Tesla's "mad dream" of millions of EVs on highways across the globe.

Today, Tesla is far and away the world's largest carmaker in terms of market cap. And Albemarle is the largest provider of lithium for EV batteries.

During the pandemic, enthusiasm for EVs went into overdrive. And since March 2020, shares of Albemarle have rocketed higher.

Albemarle Performance
 

In fact, they've outperformed the Dow Jones Industrial Average and S&P 500 Index by threefold.

In the fourth quarter, lithium sales accounted for 40% of Albemarle's total revenue of $879.1 million. It still has its bromine, refining catalyst and fine chemicals segments. And all of these are expected to experience rebounds this year as the global economy regains steam.

But its focus on lithium since it began commercial production in 2013 is what we're really interested in. We're expecting the price of lithium to continue its run higher as demand for EVs really heats up.

For 2021, analysts believe the lithium miner will post $3.21 billion in revenue with $3.50 in earnings per share.

With the shift in EV demand resulting in surging demand for lithium, I believe there's a lot of upside ahead.

Edison may have been ahead of his time with the first EV. But - more than 100 years later - his vision is finally a reality.

Here's to high returns,

Matthew

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