3 unstoppable growth stocks that are too cheap to ignore
Growth stocks have fallen out of favor with investors in 2022 due to inflation, rising interest rates and other headwinds. In this environment, many seek safety in value stocks and reliable dividend payers instead. But while focusing on quality income stocks might be a reasonable strategy for risk-averse investors, other people might be interested in picking up beat growth names.
According to three of our contributors, ChargePoint holdings (CHPT -0.52%), Autoliv (ALV -2.27%)and QuantumScape (QS -5.58%) stand out as quality growth companies worth considering right now.
Give your wallet a boost with ChargePoint
Daniel Foelber (ChargePoint): You would think that rising oil and natural gas prices would be a boon for the electric vehicle (EV) industry. After all, the last time oil and natural gas prices were in the range they’ve been in recently was about eight years ago. At the time, one of the main selling points of electric vehicles was the idea of saving money on fuel. Today, electric vehicles are more efficient and cheaper.
However, supply chain issues, rising costs and falling consumer spending are the major near-term headwinds for the electric vehicle industry. Another long-term concern is its dependence on the specific raw materials needed to manufacture the batteries. As the production of electric vehicles increases, the demand for batteries increases with it. It appears that the global supply chain is not yet ready for a major transition from internal combustion engine to battery electric motor. And these concerns, combined with rising interest rates, inflation and other challenges, are weighing on the electric vehicle industry.
ChargePoint, the leading electric vehicle charging infrastructure company in North America and a major player in Europe, doesn’t worry about short-term headwinds. It plays the long game by building relationships and building the best possible charging network for residential, commercial and fleet customers.
ChargePoint released its fiscal 2023 first quarter results on May 31 — and they didn’t disappoint. For the period ending April 30, revenue was up 102% year over year. But its gross margin fell to 15%, from 23% the previous year. Plus, ChargePoint is still losing money. And it doesn’t expect to break even on the operating cash flow front until fiscal 2025 at the earliest.
Management believes that aggressive investments are needed to capture and maintain a leadership position in the electric vehicle charging niche. This bold strategy will come under pressure if the US economy enters a prolonged downturn.
Despite the risks, ChargePoint stands out as one of the best electric vehicle stocks on the market. It has a fantastic management team that, while ambitious, deserves a lot of credit for being upfront with investors about its spending plans, market strategy and long-term view of profitability. ChargePoint is not a cheap stock now. But it boasts a market capitalization of just $4.9 billion right now, and it’s easy to imagine the company will get much bigger in the coming decades as electric vehicles become mainstream.
The demand for safety in automobiles is not going away
Lee Samaha (Autoliv): The situation could not get worse for the automotive sector. On top of continuing difficulties in obtaining semiconductors, there are problems in obtaining copper wire harnesses (Ukraine is a major manufacturer) and palladium for catalytic converters (Russia is a major exporter of palladium). So, once again, automakers face a year of reduced production capacity due to external factors.
That’s not good news for auto parts suppliers like Autoliv. With a dominant market share of 43% in passive safety systems (airbags, seat belts and steering wheels), Autoliv’s fortune will always be linked to the production of light vehicles.
However, as the saying goes, “the darkest hour is just before dawn”, and the reality is that the underlying demand for new cars remains strong. Once supply chain issues and component shortages are ironed out, it is highly likely that there will be a multi-year expansion in light vehicle production. (And those issues should be addressed — chipmakers that cater to the automotive industry, for example, are investing heavily in new production capacity.)
Moreover, Autoliv is well positioned to benefit from this, as passive safety has generally outpaced light vehicle production growth over the past few decades. Additionally, as safety standards in developing countries increase to match those imposed in developed countries, Autoliv will have the opportunity to increase its content per vehicle.
Instead of thinking that the automotive sector is constantly challenged by events, investors should take a “glass half full” view, recognize the multi-year growth opportunity ahead, and consider that Autoliv is well placed to benefit from it.
Building a better EV battery
Scott Levine (QuantumScape): With the S&P500 and Nasdaq Compound down about 13% and 22%, respectively, year-to-date, investors don’t have to look long to find discounted growth stocks. But find unstoppable growth stocks trade at a discount – this can be more difficult. QuantumScape is one such stock that investors will want to consider.
The company is focused on the development of solid-state batteries for electric vehicles. And compared to the lithium-ion batteries that currently power them, solid-state batteries offer several advantages, including the ability to charge faster and provide longer range.
But QuantumScape is still in the pre-revenue phase – it is currently developing prototypes of its batteries. In fact, management doesn’t expect to begin commercial manufacturing of its solid-state batteries until 2024.
Although it still has a long way to go before it can start generating sales, QuantumScape has convinced some top partners to join. Recognizing the significant potential of the solid state battery solution, volkswagen has been working with QuantumScape since 2012. In addition, QuantumScape has signed agreements with two of the top 10 original equipment manufacturers, one of which has expressed interest in forming a joint venture with it. And electric vehicles aren’t the only market for QuantumScape’s innovative power solution. The company has also partnered with Fluency Energywhich hopes to use solid-state batteries in its energy storage applications.
Currently priced around $12, QuantumScape shares appear to be in for a good deal given that they have traded between $10 and $43.08 over the past year. It may take a few years before QuantumScape’s solid-state batteries start rolling off the assembly line, but when they do, investors can expect electric returns.