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An expected investing behavior is to chase overvalued stocks from a sector in the limelight. Similarly, investors ignore deeply undervalued stocks from sectors facing temporary headwinds. The same stocks are bought at a premium when sentiments reverse. From optimism to big targets, EV stocks are facing pessimism. As a result, there are several undervalued EV stocks.
It’s difficult to time sentiment reversal, but there is no doubt that the EV sector is still at an early growth stage. Use this opportunity to accumulate some of the best names in the sector. Once macroeconomic headwinds wane, expect EV sales growth to accelerate globally.
From a growth perspective, EVs on the road exceeded 16.5 million in 2021. However, this is miniscule compared to the projected 350 million EVs by 2030. Therefore, let’s talk about buying three undervalued EV stocks for multibagger returns.
Li Auto (LI)
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Li Auto (NASDAQ:LI) stock had a quick rally from lows of January at $27.5 to $46.2 within one month. LI stock has cooled off after the surge. This is another good accumulation opportunity, with the stock trading at an attractive forward price-earnings ratio of 16.6.
Li Auto officially launched LI MEGA at a recent event, along with 2024 versions of previous models. LI MEGA will likely support robust delivery growth in the coming quarters. Last year, Li Auto delivered 376,030 vehicles. The company has an ambitious target to deliver 800,000 vehicles for the current year.
This seems likely with the launch of the new model. Further, Li Auto ended 2023 with a cash buffer of $14.6 billion. This provides ample flexibility to invest in new retail outlets aggressively. I must add that Li reported a free cash flow of $2 billion in Q4 2023. With robust growth, FCF will likely be more than $10 billion this year. I see no financial headwinds when investing in innovation, product development and charging infrastructure networks.
Tesla (TSLA)
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It’s been a wild ride for Tesla (NASDAQ:TSLA) investors in the last 12 months. From 52-week lows of $152, TSLA stock skyrocketed to $300 by July 2023. However, the stock has witnessed renewed correction due to macroeconomic headwinds and intense industry competition.
I believe that TSLA stock is attractively valued at current levels of $175. Fresh exposure can be considered with an investment horizon of 24 to 36 months. There are ample catalysts for growth and value creation.
It’s worth noting that Tesla Cybertruck has a robust backlog, and the new order intake has been healthy. Once mass deliveries commence, it will positively impact deliveries growth and revenue upside.
Tesla Roadster is also in the pipeline. The model will likely have a range of 620 miles and a 0-60 mph time as low as 1.9 seconds. With deliveries likely in 2025, the Roadster is another potential growth catalyst.
With a strong cash buffer and healthy cash flows, Tesla is well-positioned to make continued investments in innovation. At the same time, the company should make inroads in emerging markets with a low-price model.
Panasonic Holdings (PCRFY)
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Among EV battery stocks, Panasonic Holdings (OTCMKTS:PCRFY) looks deeply undervalued. PCRFY stock trades at a forward price-earnings ratio of 7.3 and offers a dividend yield of 2.37%. The valuation gap is on the back of broader industry sentiments. However, once macroeconomic headwinds wane, the stock can double quickly.
Two reasons to like Panasonic Holdings are innovation and aggressive growth plans. By 2031, Panasonic plans to quadruple its EV battery capacity to 200GWh. This will translate into healthy revenue growth, and Panasonic expects EBITDA margin expansion.
On the innovation front, there are two points to note. First, the company expects to boost the volumetric energy density of batteries to 1,000Wh/L by 2031. This would be 25% higher than current levels. Further, the company is targeting production of solid-state batteries for drones and factory robots by 2029. This would open a big addressable market. Therefore, The long-term outlook is bullish, and I expect PCRFY stock to be a multibagger.
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.comPublishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
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