Investors have been on edge in anticipation of the Federal Reserve aggressively raising interest rates, which has caused stock market turmoil, particularly among companies driven by innovation like Tesla, despite the fact that these companies have excellent earnings and profits. Keeping this in mind, investors should consider whether the recent drop in stock prices of promising companies is a warning sign or an opportunity to get their picks at a lower price.
Cathie Wood, CEO of Ark Invest, believes that investors should look beyond the recent drop in stock prices of innovation-driven companies to a longer horizon in which these companies will most likely deliver superior performance. She said that "innovation is on sale," and that now is the time for investors to be active and capitalize on the opportunity to the greatest extent possible. She went on to say that typically, stock traders interpret an uptick in volatility as a rise in risk, whereas higher volatility should be viewed as an opportunity to outperform the market and boost portfolio returns.
One way to do that is by focusing on the electric vehicle (EV) sector, which is likely to disrupt mobility over the next ten years:
Tesla (TSLA)
Investing in Tesla is a no-brainer as it is a frontrunner within the EV sector, and achieved sound earnings during the fourth quarter 2021. During this period, the company was able to expand its sales by a whopping 65% and increase its vehicle deliveries by 71%. Moreover, the company’s earnings per share (EPS) climbed to $2.54 versus the expected $2.36.
Tesla's prospects for the future remain bright, as the company has nearly $17.6 billion in cash on hand, which it can use to expand operations and develop new products. Furthermore, the company's new factory in Austin, Texas, is expected to begin production soon, and Elon Musk has stated that his company will most likely be able to achieve completely self-driving cars that require no human intervention at all. These factors would enable the company to respond quickly to the spike in demand for EVs over the next ten years while also generating profits.
Volkswagen (VLKAF)
Volkswagen is one of the biggest car manufacturers in the world and sells nearly 10 million vehicles annually. When compared to other mega-car manufacturers like Ford and Tesla, the figures are staggering: Ford sells between 4 and 6 million vehicles per year, while Tesla produces nearly 900,000 vehicles per year.
Moving forward, Volkswagen is also shifting its focus to the EV sector, and it has partnered with QuantumScape, investing $300 million in the company. The goal is to develop lithium-metal batteries that are likely to be less expensive and have more energy than the lithium-ion batteries currently in use. If this venture succeeds, these batteries will most likely improve the performance and range of EVs.
Rivian (RIVN)
Rivian has been trending among investors since its IPO was able to fetch the company an unbelievable market capitalization of $150 billion within its first few days of trading. Behemoth companies like Ford and Amazon have stakes in the company as well. Rivian achieved these extraordinary numbers despite manufacturing merely 1,000 vehicles in 2021.
What the company is doing differently is that it is targeting a less-explored market for commercial delivery vans, SUVs, and pick-up trucks. Rivian has already been able to gain preorders amounting to nearly 71,000 for its R1T truck model. In addition to this, Amazon has also ordered 100,000 electric delivery vans from the company to be delivered over the next 8 years.
Lucid (LCID)
Similar to Rivian, Lucid Group also grabbed a lot of attention in 2021 through the launch of a premium sedan called "Lucid Air." The U.S. Environmental Protection Agency stated that the sedan could cover a range of 520 miles on a single charge, which is the longest range that any electrified vehicle has ever achieved. The sedan was also named "Car of the Year" by Motor Trend. This positive reputation right from the onset of the company’s operations will likely help it drive its sales higher in the future.
The Bottom Line
It is no secret that demand for environmentally friendly products has never been greater, and companies that recognize this and shape their strategies to fit this mission are likely to lead markets over the next decade. This is why companies like Rivian and Lucid are trading at high valuations despite being in their early stages. As a result, investors should begin focusing on this sector as soon as possible in order to be ahead of the market and book significant profits.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Naeem Aslam
I am a former Hedge Fund Trader with over 15 years of experience in investment banking. During my early career, I was awarded a national award (Young Irish Broker) in 2010. Over the years, I have worked with Bank of America in equity trading and with Bank of New York in hedge fund trading. I specialize in Blockchain technologies (cryptocurrencies and digital assets) and Sustainable Investments. In my career thus far, I have also extensively covered Equities, Commodities and Forex.
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