Beyond Tesla: Morningstar strategist names 2 under-the-radar stocks to play the EV revolution
The electric vehicle industry is seeing cutthroat competition between investor favorite Tesla and several Chinese automakers like BYD . However, one strategist has his sights on the wider electric vehicle ecosystem — especially automotive parts suppliers. “While Tesla grabs all the headlines, we don’t necessarily think that it’s going to be the electric vehicle manufacturers that do the best. But we also see a lot of upside for the parts suppliers,” Morningstar’s Chief Markets Strategist David Sekera said, naming BorgWarner as a company he likes. Noting that it has “the best product portfolio for electric vehicles,” he said that the stock, which has been given a five-star rating, trades at about half of Morningstar’s fair value metric right now. Morningstar gives stocks a rating of between one and five stars, with a top rating indicating that the shares are undervalued. BorgWarner — which is a supplier to automakers like Ford Motor and Volkswagen — is expecting its net sales to fall between $14.4 billion and $14.9 billion this year, below Wall Street’s $15.31 billion consensus predicted. It is also expecting adjusted share profits between $3.65 and $4.00, below the $4.27 profit analysts have penciled in. Even so, Sekera remains optimistic, adding that “BorgWarner is well positioned to be able to supply to manufacturers irrespective of who ends up being the market share leaders at the end of the day,” as electric vehicles become a greater and greater percentage of auto production. Over the last 12 months, shares of BorgWarner are down 26.3%. Of the 19 analysts covering the stock, 11 give it a buy or overweight rating at an average price of $40, according to FactSet data. This gives it around 23.8% upside potential. Promise in lithium producers Aside from parts suppliers, Sekera sees promise in another corner of the ecosystem: lithium producers. “There was a bubble in lithium prices in 2021 — that bubble popped, and it’s been on a 12 to 18 month steady decline. We think lithium prices are probably bottoming out here,” he told CNBC Pro on Feb. 2. With estimates from the International Energy Agency indicating that over 60% of the cars sold globally would be electrified, he believes that the demand for lithium will go up substantially over the next few years, since it is a key component of electric vehicles. “When we model out how much lithium we think will be required globally to make batteries for all those electric vehicles and we compare that to how much lithium is in production today and how much additional lithium production will be needed – our team believes that lithium is going to be under-supplied by 2030,” Sekera explained. “The excess demand and without the supply, to satisfy that demand, we do think that lithium prices will stay, much higher than the marginal cost of production over the course of the next decade,” he added naming Albemarle as a company on his radar. Calling it “one of the more high quality lithium companies today,” Sekera likes the five-star rated stock as it is trading under half of Morningstar’s fair value right now. Albemarle made the news recently after laying off over 300 employees as part of previously announced cost cutting measures. While the company did not specify the number of jobs affected, Reuters reported that the move would save it at least $50 million just this year. Shares of the U.S. lithium company have had a bumpy ride over the past days. Over the last 12 months, shares of Albemarle are down 55.5%. Of the 30 analysts covering the stock, 19 give it a buy or overweight rating at an average price of $156.16, according to FactSet data. This gives it around 30% upside potential.
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