EV sales are booming and are expected to displace gas-powered cars within a decade as the primary mode of transportation. Rather than 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 globally, and this figure is expected to reach 26.8 million annual sales by the end of the decade. The major drivers are government policies supporting the adoption of EVs due to lower pollution, lower cost, and increased efficiencies.
Many investors are betting on the growth of EVs by choosing which upstart EV maker or legacy automaker will capture the most market share. However, a higher probability path is to bet on the growth of the entire industry by betting on the companies that will be integral parts of the EV supply chain.
This encompasses a wide variety of options including the companies that mine and refine metals used in batteries, those making chips that are used in the cars or making key components for EVs. Here are 2EV supply chain stocks that investors should consider:
Sociedad Quimica Y Minera (SQM)
SQM is a major producer of lithium and accounts for 13% of global production. It also produces a number of other commodities including iodine and potassium nitrate. Lithium accounts for 26% of its revenue and the majority of revenue growth.
One way to see the underlying strength in lithium is that stocks in the sector are outperforming on multiple timeframes. Currently, they are hovering just beneath their all-time highs, while most stocks in the market are off by more than 25% from their highs.
This is certainly true in SQM’s case as the stock is up 115% YTD, while being off by only 6% from its all-time highs. Despite these gains, the stock remains quite cheap with a forward P/E of 8.5 and a 4% dividend yield. It also has more than $3 billion in cash on the books.
The POWR Ratings are also bullish on SQM as it’s rated a B which translates to a Buy. B-rated stocks have posted an average annual performance of 21.0% which compares favorably to the S&P 500’s annual 8.0% 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. Thus, the company has been a beneficiary of rising copper prices since March 2020.
In recent months, copper prices have been moving lower due to increased fears of a recession. And, they could certainly decline more if this is realized. However, the longer-term trends that drove copper higher remain intact. In fact, they are more durable than the cyclical swings that can create opportunities for savvy investors.
On the demand side, the increased electrification of the economy which includes EVs mean that demand will be structurally higher. On the supply side, copper companies have not been investing in new production which means that we could have a major supply crunch in the event of a full, global recovery after the recession.
In terms of component grades, FCX has a B for Quality due to being one of the largest and lowest-cost producers of copper. It also has a B for Growth due to its very low debt levels and strong cash flow. Click here to see FCX’s complete POWR Ratings.
What makes them “MUST OWN“?
All 9 picks have strong fundamentals and are experiencing tremendous momentum. They also contain a winning blend of growth and value attributes that generates a catalyst for serious outperformance.
Even more important, each recently earned a Buy rating from our coveted POWR Ratings system where the A rated stocks have gained +31.10% a year.
Click below now to see these top performing stocks with exciting growth prospects:
FCX shares rose $0.15 (+0.50%) in after-hours trading Wednesday. Year-to-date, FCX has declined -27.16%, versus a -16.30% rise in the benchmark S&P 500 index during 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 Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles.