Follow the smart money into these electric vehicle stocks
- Leverage the future of mobility with these EV stocks hedge funds are buying.
- Rivian Automotive (RIVN): Rivian features over 50% institutional ownership.
- Lucid Group (LCID): Lucid’s institutional backing increased steadily since August 2018.
- Nio (NIO): Nio’s institutional ownership increased significantly since 2018.
- BYD (BYDDF): BYD’s backing from major investors skyrocketed since June 2020.
- Lightning eMotors (ZEV): Institutional interest in ZEV surged since May 2021.
- General Motors (GM): General Motors’ major fund backing has been steadily rising.
- Tesla (TSLA): Tesla still commands significant backing from hedge funds.
Though the electric vehicle industry may be struggling, certain EV stocks hedge funds are buying could offer hope for contrarians. To be sure, one of the sector exchange-traded funds Fidelity Electric Vehicles and Future Transportation ETF (BATS:FDRV) fell nearly 37% on a year-to-date basis. Therefore, investors do need to be cautious about engaging in this space.
Nevertheless, there’s something to be said about trading with smart money. In particular, institutional investors such as high-profile hedge funds leverage tremendous resources and brain power. By logical deduction, retail investors can piggyback off this catalyst. It’s no guarantee, of course, but the EV stocks hedge funds are buying may outperform the competition.
Rivian Automotive (RIVN)
Perhaps one of the more visually stunning EVs on the road today, Rivian Automotive (NASDAQ:RIVN) currently features two main products: an electric sport utility vehicle (SUV) and a pickup truck. Both chasses are built off a skateboard platform or shared framework. This enables Rivian to respond quickly to shifting consumer tastes, delivering at scale the vehicles people want to drive.
To be fair, though, circumstances have not particularly favored RIVN stock. Since the Jan. opener, shares gave up nearly 69% of equity value. On the flipside, RIVN may be in the early innings of a comeback attempt. In the trailing five sessions, the equity unit popped up almost 8%. Most importantly under the context of this article, RIVN represents one of the EV stocks hedge funds are buying. In late November 2021, institutional ownership of RIVN amounted to 8.62%. However, this allocation jumped to 50.7% in October of this year.
Lucid Group (LCID)
Headquartered in Newark, California, Lucid Group (NASDAQ:LCID) focused on day one in developing some of the leading luxury EVs available. Fundamentally, management is arguably correct in targeting wealthy consumers first. According to Kelley Blue Book, the average price of a new EV early this year stood at $62,876. It’s almost surely higher today, meaning that only the affluent can comfortably afford electric-powered transportation.
Over time, economies of scale may change this narrative. Until it does, however, Lucid will target where the money is. In my opinion, it’s a smart business strategy. For now, the company must struggle through less-than-ideal income-related metrics in the hopes of eventual viability. Fortunately, the enterprise features a relatively healthy cash balance.
Adding to the speculative sentiment is that LCID ranks among the EV stocks hedge funds are buying. Back in July of last year, institutional ownership of LCID sat at 2.34%. However, as of the latest read (end of October), this metric stood at 11.5%.
Headquartered in Shanghai, China, Nio (NYSE:NIO) garnered intense popularity during the first year of the coronavirus pandemic. Shares eventually went parabolic in January of last year. However, the company failed to recreate the magic – much of it driven by meme traders. For example, since the start of this year, NIO hemorrhaged nearly 62% of its equity value.
At the same time, it appears that bullish traders believe the negativity has been overdone. In the trailing month, NIO shares gained a remarkable 31.6%. Further, over the past five sessions, the security shot up 24%. Certainly, with China focusing aggressively on building EV production facilities and infrastructure, Nio may still offer intrigue for gamblers. To be fair, Gurufocus.com labels NIO as a possible value trap. On the other hand, ownership data reveals that it’s one of the EV stocks hedge funds are buying. In August 2018, institutional ownership sat at 2.19%. As of the latest read, this metric pings at 18.6%.
Based in Shenzhen, China, BYD (OTCMKTS:BYDDF) is a conglomerate manufacturing company that specializes in automobiles, buses, electric bicycles, trucks, forklifts, solar panels, and rechargeable batteries. Another one of the EV stocks hedge funds are buying that won big during the Covid-19 pandemic, BYD shares softened significantly. Presently, BYDDF fell nearly 27% YTD. Of course, BYD gained tremendous interest because of Warren Buffett. According to an early October 2022 article by Forbes, Buffett’s Berkshire Hathaway (NYSE:BRK-B) holds an approximately 7% stake in the Chinese automaker. To be sure, CNN recently reported that Buffett unwound some exposure to BYD. Nevertheless, Berkshire holds a significant amount of shares.
Further, BYD features relatively decent financial metrics, including a cash-to-debt ratio of 1.8 times that beats out nearly 71% of the competition. Also, it ranks among the EV stocks hedge funds are buying. In late 2013, institutional ownership sat at 1.9%. Most recently, this metric rates at 9%.
Lightning eMotors (ZEV)
Billed as an enterprise that provides real-world EVs for today, not someday, Lightning eMotors (NYSE:ZEV) attempts to marry innovation with practicality. Mainly, the company deploys zero-emission vehicle solutions for commercial fleets. Given the financial pressures associated with last-mile deliveries, Lightning presents a viable answer for fleet operators.
Unfortunately, its relevance did not exempt the enterprise from market volatility. Indeed, ZEV easily ranks among the riskiest EV stocks hedge funds are buying. Since the start of this year, shares plunged more than 89% of market value. In the trailing month alone, ZEV evaporated nearly 56% of its value. That said, in the trailing five sessions, the stock gained over 19%.
It’s possible that some of the most daring hedge funds recognize the potential extreme value proposition of Lightning, should the company succeed in its initiatives. In May of last year, institutional ownership barely represented a blip. As of October, this stat now stands at 17.2%.
General Motors (GM)
When it comes to EV stocks hedge funds are buying, General Motors (NYSE:GM) fails to garner much excitement. As a legacy automaker, it simply doesn’t have the pizzazz of an upstart EV manufacturer. Nevertheless, GM offers a balanced approach to the future of transportation, integrating both electric and combustion-powered vehicles into the mix.
Another factor to keep in mind is that American consumers trust GM. Sure, we can crack jokes about the historical quality standards (or lack thereof) of American cars. However, GM is an institution in this country. On the other hand, what about these upstarts? What happens if they fail? According to past precedent, drivers of vehicles whose underlying companies failed are on their own. Further, institutional ownership of GM stock has been steadily rising. For full disclosure, it’s not the greatest magnitude. However, the trajectory from 2011 to now has been impressive. For arguably the safest choice among direct-play EV investments, give GM a second look.
Even though overall institutional ownership has been fading from its highs, I’d be remiss not to include Tesla (NASDAQ:TSLA) on this list of EV stocks hedge funds are buying. True, TSLA shares – after a meteoric ascendency from the spring doldrums of 2020 – succumbed to significant pressure this year, giving up more than 51% of equity value. Nevertheless, the company still commands tremendous respect.
Just look at the analyst ratings for TSLA stock. Currently, TipRanks states that the consensus rating for Tesla is a moderate buy. This breaks down to 18 buys, eight holds, and two sells. As well, the consensus price target is $307.72. From the time of writing, this represents a 58% upside potential.
Regarding the allocation of total institutional ownership, TSLA incurred a significant drop since peaking around 2016. Still, according to Insider Monkey, at the end of the third quarter of this year, 88 hedge funds owned a position in TSLA. This represented a 35.4% year-over-year lift.
This post originally appeared at InvestorPlace.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.