EV production is exploding and EV batteries in short supply
For manufacturing companies, shortages of the products they make are often extremely positive, leading to very high profits. So given the steep shortages of batteries for electric vehicles, some battery stocks are likely to produce huge, market-beating returns for investors.
As InvestorPlace contributing editor Jeff Remsburg noted in his Jan. 6 column, Blackstone (NYSE:BX) Vice Chairman Byron Wien recently predicted that the U.S. would not be able to obtain enough lithium batteries to meet demand in 2022.
To see how companies can benefit from shortages, take a look at how well the shares of many chip makers have done during the recent chip shortage. For example, in the last three months, Applied Materials (NASDAQ:AMAT) jumped 20%, Lam Research (NASDAQ:LRCX) climbed 22% and NXP Semiconductors (NASDAQ:NXPI) has added 16%.
It’s not too difficult to figure out why manufacturing companies benefit from shortages; firms in such situations can easily sell all of their products, and the prices of their offerings usually surge dramatically.
So with the EV revolution gaining steam around the world and likely to trigger shortages of lithium-ion batteries, it’s an excellent time to buy battery stocks. Here are three of the best names to buy in the sector:
- BYD Company (OTCMKTS:BYDDF)
- Global X Lithium and Battery Tech ETF (NYSEARCA:LIT)
- Romeo Power (NYSE:RMO)
Battery Stocks to Buy: BYD Company (BYDDF)
Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) is a fan of China’s BYD, as Buffett’s company invested $232 million in BYD stock back in 2008. By the end of 2020, Buffett’s stake in BYD was worth a stunning $5.9 billion.
Unlike Tesla (NASDAQ:TSLA), BYD manufactures its own batteries in addition to making EVs. According to Investor’s Business Daily, “The BYD Blade batteries have good range and are seen as among the safest available for EVs.”
Ford (NYSE:F) is utilizing BYD’s batteries in its extremely popular and well-received Mustang Mach E, while Toyota (NYSE:TM) is reportedly interested in widely utilizing BYD’s batteries. Perhaps most impressively, there are rumors that Tesla itself will start utilizing BYD’s batteries this year.
Moreover, BYD makes our list of battery stocks because it’s a big-time EV maker in the world’s largest EV market. BYD is looking to sell a combined 1.1 million to 1.2 million all-electric and plug-in hybrid vehicles this year. And BYD hasn’t even yet expanded to developed countries.
Last quarter, BYD’s top line came in at $8.9 billion, up from $7.19 billion during the same period a year earlier. Its operating income was $225.5 million, versus $34.9 million during the same quarter a year earlier. Its price-cash flow ratio is just 10, according to Marketwatch.
Global X Lithium and Battery Tech ETF (LIT)
As I pointed out in a previous column, The LIT ETF enables investors to indirectly buy the shares of huge, foreign battery developers and battery-component makers.
Among its largest holdings are China’s Contemporary Amperex Technology Co, the biggest EV battery maker in the world. Another one of the ETF’s largest holdings is China-based Yunnan Energy New Material, which manufactures lithium battery separators and is expanding its separator capacity.
China-based lithium-ion battery maker EVE Energy is another one of the ETF’s largest holdings. Its Q3 revenue came in at 4.89 billion yuan, or $770 million, up 126% from a year ago. Its bottom line jumped 24% to $113 million. EVE is expanding its lithium-ion battery capacity.
The ETF also holds many the shares of many lithium miners, which should benefit from the current lithium shortage.
Romeo Power (RMO)
Launched over five years ago by former Tesla and SpaceX engineers, Romeo Power focuses on developing batteries and related software for trucks.
Romeo has made multiple, impressive deals, For example, in April 2021, PACCAR (NASDAQ:PCAR), a huge truck maker, agreed to buy the company’s products. And in 2019, giant auto supplier BorgWarner (NYSE:BWA), announced that it would form a joint venture with Romeo.
Under the deal, BorgWarner also obtained 20% of RMP stock. And impressively, the giant intends to boost its revenue from EV components to 45% of its revenue by 2030, up from less than 3%. Romeo and its stock should benefit tremendously from that transition.
Despite all of these positive catalysts, Romeo has a low market capitalization of just $433 million.
This article originally appeared at InvestorPlace.
On the date of publication, Larry Ramer held a long position in LIT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Larry Ramer has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015.