In this article, we will take a look at the 11 most undervalued EV stocks to buy according to hedge funds. To see more such companies, go directly to 5 Most Undervalued EV Stocks To Buy According To Hedge Funds.
The China Factor Affecting the EV Industry
The EV industry and its related segments almost always remain in the news amid the explosive growth potential and huge demand of electric cars in the world. However, lithium companies, which have a key role to play in the EV revolution, are in the news for a negative reason as their stock prices are falling after Chinese battery company CATL reportedly offered some discounts to EV makers. This comes as lithium prices struggle to post a comeback amid a supply glut. Some notable stocks taking it on the chin because of this news from China include Albemarle, Lithium Americas, Livent and SQM.
Some analysts also believe that pricing wars and oversupply in the market could spillover and affect major pure-play EV companies too, including Tesla Inc (NASDAQ:TSLA), Nio Inc – ADR (NYSE:NIO) and Xpeng Inc – ADR (NYSE:XPEV). Oversupply in China would translate to lower margins for these companies.
Despite all these headwinds, it’s almost a consensus among analysts that in a couple of decades electric vehicles will be widely popular among the masses. EV companies are already racing to build low-cost versions of electric cars to make them more accessible to the customer. Latest data from BloombergNEF shows that annual spending on passenger EVs touched a whopping $388 billion in 2022, up 53% from the year before.
Explosive Growth
If you look at this figure from a different angle, you can see the huge potential the EV industry has. The Bloomberg report said that global auto sales are worth about $2.5 trillion per year. EVs first popped up on the automotive industry radar about a decade ago. During this period, total car sales in the world had a worth of about $25 trillion. However, the total value of electric vehicles sold to date as of 2022 in the passenger vehicle segment is $1 trillion. In this context, the EV industry still looks in its early stages. Bloomberg’s data suggest that 60% of the total EV spending occurred in the last 18 months. This scale of growth will definitely take over the legacy car industry in the coming years.
The Customer Wins
Consumers are getting an abundance of choices when it comes to EVs. You no longer have to choose from just the two or three big names in the market (Leaf, Bolt, Tesla). Some new entrants in the market making waves among the masses include Nissan Ariya, Audi Q4 e-tron, Cadillac Lyriq, Mercedes EQB SUV, among others. Car companies are offering new designs, technologies, interior/exterior features and much more, pointing to the intense competition that is ultimately benefitting the consumer.
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Our Methodology
For this article we scanned Insider Monkey’s database of 943 hedge funds and their holdings tracked as of the end of the fourth quarter of 2022 and picked 11 EV stocks trading at PE ratios under 25 as of March 1. We picked pure play EV stocks and also the companies that have indirect exposure to the EV industry, including battery materials and EV technology and parts companies. The list is ranked in ascending order of the number of hedge fund investors.
Most Undervalued EV Stocks To Buy According To Hedge Funds
11. Sigma Lithium Corporation (NASDAQ:SGML)
Number of Hedge Fund Holders: 11
Sigma Lithium Corporation (NASDAQ:SGML) explores and develops lithium deposits in Brazil. Sigma Lithium Corporation (NASDAQ:SGML) says on its website that its mission is to “enable electric vehicle industry growth by becoming one of the world’s largest, lowest cost producers of high-purity, environmentally sustainable lithium products.”
Sigma Lithium Corporation (NASDAQ:SGML)’s forward PE ratio stands at 5.90, according to Yahoo Finance.
In December 2022, Sigma Lithium Corporation (NASDAQ:SGML) jumped after the company shared plans to triple its planned production of battery grade lithium concentrate to ~100K metric tons/year of lithium carbonate equivalent by 2024.
Sigma Lithium Corporation (NASDAQ:SGML) at the time also said that it signed agreements worth up to $100 million in senior secured pre-export financing with Synergy Capital, one of the company’s current shareholders.
Insider Monkey’s database shows that 11 hedge funds had stakes in Sigma Lithium Corporation (NASDAQ:SGML) at the end of the fourth quarter of 2022.
10. Sociedad Química y Minera de Chile S.A. (NYSE:SQM)
Number of Hedge Fund Holders: 25
Chile-based lithium producer Sociedad Química y Minera de Chile S.A. (NYSE:SQM) is one of the most undervalued EV stocks to buy according to hedge funds. As lithium demand booms all over the world, Sociedad Química y Minera de Chile S.A. (NYSE:SQM) will take benefit of its dominance in the sector and rake in profits. Recently, Scotiabank analyst Ben Isaacson called Sociedad Química y Minera de Chile S.A. (NYSE:SQM) and Lithium Americas (NYSE:LAC) his top picks amid « an increasingly bullish view the farther out we look. »
In November, Sociedad Química y Minera de Chile S.A. (NYSE:SQM) posted its Q3 results. GAAP EPS EPADR in the period came in at $3.85, beating estimates $0.47. Revenue in the period increased by a whopping 347% on a YoY basis to reach $2.96 billion, beating estimates by $180 million. Sociedad Química y Minera de Chile S.A. (NYSE:SQM)’s gross profit in the quarter reached $1,632.7 million, much higher than the $224.8 million posted in the comparable period last year.
25 hedge funds tracked by Insider Monkey reported owning stakes in Sociedad Química y Minera de Chile S.A. (NYSE:SQM) at the end of the fourth quarter of 2022.
9. BHP Group Limited (NYSE:BHP)
Number of Hedge Fund Holders: 28
Mining giant BHP Group Limited (NYSE:BHP) has a lot to gain from the EV market due to its huge presence in the nickel industry. In February BHP Group Limited (NYSE:BHP) released its latest financial numbers. GAAP EPS for the first half of fiscal 2023 came in at $1.273. Revenue in the quarter fell about 16% on a YoY basis to reach $25.71 billion. Net operating cash flow in the period totaled $6.8 billion.
Back in 2021, BHP Group Limited (NYSE:BHP) and Toyota Australia partnered on a Light Electric Vehicle (LEV) trial at BHP’s Nickel West operations.
8. Rio Tinto Group (NYSE:RIO)
Number of Hedge Fund Holders: 29
Mining giant Rio Tinto Group (NYSE:RIO) is one of the notable EV stocks due to its lithium operations. Last year, Rio Tinto Group (NYSE:RIO) and Ford Motor Company signed a non-binding MoU to jointly develop more sustainable and secure supply chains for battery and low-carbon materials to be used in Ford vehicles.
At the end of the fourth quarter of 2022, 29 hedge funds reported owning stakes in Rio Tinto Group (NYSE:RIO). The total value of these stakes was about $2.6 billion. The biggest stakeholder of Rio Tinto Group (NYSE:RIO) was Rajiv Jain’s GQG Partners which owns a $600 million stake in the company.
7. Livent Corporation (NYSE:LTHM)
Number of Hedge Fund Holders: 29
Pennsylvania-based Livent Corporation (NYSE:LTHM) sells performance lithium compounds that are used in lithium-based batteries, among other applications. Livent Corporation (NYSE:LTHM) ranks 7th in our list of the most undervalued EV stocks to buy according to hedge funds.
In January 2023, Livent Corporation (NYSE:LTHM) shares soared after BofA analyst Steven Byrne upgraded the stock to Buy from Underperform. The analyst said that the outlook for the lithium sector is “constructive” over the medium- to long-term. However, he noted that volatility in demand has driven price softness in the industry.
“We see current shares as pricing in too low of a lithium market price over the cycle, and thus rate shares Buy accordingly,” Byrne said.
However, the analyst slashed his price target on Livent Corporation (NYSE:LTHM) to $26.
At the end of the fourth quarter of 2022, 29 hedge funds tracked by Insider Monkey reported owning Livent Corporation (NYSE:LTHM) shares. The total worth of these stakes was over $250 million.
Carillon Eagle Small Cap Growth Fund made the following comment about Livent Corporation (NYSE:LTHM) in its Q4 2022 investor letter:
“Livent Corporation (NYSE:LTHM) is a pure-play, fully integrated producer of performance lithium compounds. The stock underperformed amid investor concerns about how a potential decelerating rate of growth in overall electric vehicle (EV) production and demand, primarily in China, would affect the future price of lithium. Despite these potential near-term headwinds, longer-term the global lithium market remains tight, and we believe Livent plays a critical role in the battery value chain and remains well- positioned for the overall continued global adoption of EVs.”
6. Ford Motor Company (NYSE:F)
Number of Hedge Fund Holders: 40
Ford Motor Company (NYSE:F) has pledged to become a leader in the EV revolution in America. Back in 2021 Ford Motor Company (NYSE:F) announced huge investments in the EV sector as it revealed plans to develop a complex dedicated to EV projects.
In February, Ford Motor Company (NYSE:F) announced that it signed a non-binding MoU with LG Energy Solution and Koç Holding to develop a new JV to create a commercial electric vehicle battery cell facility in Turkey. The facility, which will be among the largest in Europe, will be built near Ankara, Turkey’s capital.
At the end of the fourth quarter of 2022, 40 hedge funds tracked by Insider Monkey had stakes in Ford Motor Company (NYSE:F). The total worth of these stakes was about $1.4 billion. The biggest stakeholder of Ford Motor Company (NYSE:F) during this period was Ken Griffin’s Citadel Investment Group which had a stake worth about $204 million in the company.
Here is what Leaven Partners has to say about Ford Motor Company (NYSE:F) in its Q3 2022 investor letter:
“In our last quarterly letter, I briefly mentioned that the consensus estimates for corporate profits appeared to be a bit too sanguine. I referenced a Reuters article that reported, as of June 17, Wall Street expected S&P 500 earnings to grow by 9.6% in 2022, which was up from 8.8% in April and from 8.4% in January. That tune began to change at the end of July and accelerated in August and September, as major players, such as Ford (NYSE:F), has recently issued profit warnings and/or have withdrawn guidance. In response, Wall Street has altered its outlook: lowering third-quarter profit growth to 4.6%[2] from 7.2% in early August and slashing full-year profit growth to 4.5%.”
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Disclosure: None. 11 Most Undervalued EV Stocks To Buy According To Hedge Funds is originally published on Insider Monkey.
