When an asset class or sector is in a long-term bull market, it does not imply that stocks move vertically higher. The implication is that stocks remain in an uptrend for 5 or 10 years. Within that uptrend, there can be periods of intermediate correction where stocks can decline by 30% to 50%.
In my view, the electric vehicle (EV) sector is in a long-term bull market. However, the sector faces macroeconomic, inflationary and supply chain headwinds. That has translated into a correction for some of the best EV stocks to buy.
This column looks at three EV stocks that have witnessed a deep correction. Further, these stocks represent quality companies, and I believe the bounce back from oversold levels is likely to be sharp. I am bullish on some quick returns from these names, and I also believe these EV stocks to buy are worth holding until 2030.
Li Auto (LI)
Li Auto (NASDAQ:LI) has delivered stellar growth on a sustained basis. However, it’s worth noting that LI stock has declined by 25% in the last six months. The reason is weak sentiments for Chinese stocks. I see this correction as a golden opportunity to buy LI stock poised for multibagger returns in the long term.
For 2023, Li Auto delivered 376,030 vehicles, which was higher by 182.2% year-over-year. For the current year, the company set an ambitious target of delivering 800,000 vehicles. If this holds true, Li Auto will be positioned for robust cash flow upside.
It’s worth noting that Li reported $12.13 billion in cash and equivalents as of Q3 2023. For the quarter, the company also reported free cash flow (FCF) of $1.8 billion. Given the growth trajectory, I would not be surprised if Li Auto reports FCF of around $10 billion this year. With high financial flexibility, the company will be positioned to invest in expansion and product innovation.
Lithium Americas (LAC)
The big plunge in lithium prices has presented a golden opportunity to accumulate quality lithium miners. Once the trends for lithium reverses, I expect multibagger returns from the best lithium stocks. Lithium Americas (NYSE:LAC) is among my top picks at current levels of $4.20. I see the stock trading in double digits in quick time.
An important point to note is there are expectations of a lithium shortage as soon as 2025. Further, it’s expected the lithium supply gap will be acute by 2035. That underscores my bullish view on lithium.
Specific to Lithium Americas, the company currently commands a market valuation of $730 million. In comparison, the company’s Thacker Pass asset has an after-tax net present value of $5.4 billion. With a mine life of 40 years and an average annual EBITDA expectation of $1.1 billion, the asset is a potential cash flow machine.
It’s worth noting that Lithium Americas has General Motors (NYSE:GM) as a strategic partner for the project. GM will be investing $650 million on two tranches. Further, the company signed a 10-year offtake agreement for lithium from phase one.
Tesla (TSLA)
With Elon Musk warning about competition and pressure on margins, Tesla (NASDAQ:TSLA) stock declined by 26% year-to-date. Being an innovator, I believe Tesla is positioned to navigate challenges and continue to grow. The correction, therefore, presents a good buying opportunity.
The manager of the Baron Focused Growth Fund expects TSLA stock to touch $1,200 by 2030. That would imply 6.5x returns from current levels. I will not be surprised if this happens, with Tesla having an ambitious target to produce 20 million EVs annually by 2030. Of course, this is the long-term outlook.
I am, however, bullish on a sharp reversal for TSLA stock, even for the near term. The reason is an attractive product line-up that includes Cybertruck, Roadster and Tesla Semi. I am also expecting Elon Musk to announce potential factories in emerging markets. The company is already aiming to cut manufacturing costs to half. If that is achieved, Tesla can target the mass market in emerging economies.
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.
