Electric vehicle sales are booming and are expected to displace gas-powered cars as the primary mode of transportation within a decade. Instead of trying to pick winners and losers among the manufacturers, investors should bet on key companies that are part of the supply chain. 2 of these companies are Freeport McMoran (FCX) and Sociedad Quimica Y Minera (SQM).
Electric vehicles (EV) are in an exciting growth phase. Last year, 6.6 million EVs were sold worldwide, and this number is expected to reach 26.8 million annual sales by the end of the decade. The main drivers are government policies to support the adoption of EVs due to less pollution, lower costs and increased efficiency.
Many investors are betting on EV growth by choosing which fledgling EV maker or legacy automaker will capture the most market share. However, a greater chance is to bet on the growth of the entire industry by betting on the companies that will be an integral part of the EV supply chain.
This includes a wide range of options, including companies that mine and refine metals used in batteries, companies that make chips used in cars, or make key components for EVs. Here are 2EV supply chain stocks investors should consider:
Sociedad Quimica Y Minera (m²)
SQM is a major producer of lithium, accounting for 13% of global production. It also produces a number of other raw materials, including iodine and potassium nitrate. Lithium accounts for 26% of sales and most of the sales growth.
One way to see lithium’s underlying strength is that stocks in the sector outperform over multiple timeframes. Currently, they are hovering just below their all-time highs, with most stocks in the market drifting more than 25% off their highs.
This is certainly true in the case of SQM, as the stock is up 115% YTD, while it is only 6% lower than its all-time high. Despite these gains, the stock remains quite cheap with a forward P/E of 8.5 and a dividend yield of 4%. It also has over $3 billion in cash on its books.
The POWR ratings are also bullish on SQM as it has a B which translates to a buy. B-rated stocks have posted an average annual performance of 21.0%, which compares favorably with the S&P 500’s 8.0% annual gain. Click here to see more of SQM’s POWR Ratings.
Freeport McMoran (FCX)
FCX is a producer of various metals such as gold, copper and molybdenum. However, copper accounts for 75% of all revenue. For example, the company has been benefiting from rising copper prices since March 2020.
Copper prices have fallen in recent months due to heightened fears of a recession. And they could certainly refuse more if this is realized. However, the long-term trends that have driven copper higher remain intact. In fact, they are more sustainable than the cyclical swings that can create opportunities for savvy investors.
On the demand side, the increased electrification of the economy, including EVs, is leading to structurally higher demand. On the supply side, copper companies have not invested in new production, which means that with a full global recovery from the recession, we could have a major supply crisis.
In terms of component grades FCX has a B for quality because it is one of the largest and cheapest producers of copper. It also has a B for growth due to its very low debt level and strong cash flow. Click here to see FCX’s full POWR ratings.
What makes them”MUST OWN“?
All 9 picks have strong fundamentals and experience tremendous momentum. They also contain a winning mix of growth and value attributes that are a catalyst for serious outperformance.
More importantly, they have all recently earned a Buy rating from our coveted POWR Ratings system, with A-rated stocks rising +31.10% per year.
Click below now to check out these top-performing stocks with exciting growth prospects:
FCX shares were up $0.15 (+0.50%) in after-hours trading on Wednesday. Year-to-date, the FCX is down -27.16%, compared to a -16.30% gain for the benchmark S&P 500 index over the same period.
About the author: Jaimini Desai
Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR growth and POWR Shares Below $10 newsletters. Read more about Jaimini’s background, along with links to his most recent articles.