Best Battery Stocks To Buy

But this wasn’t always the case. Batteries were often little more than an afterthought for manufacturers and consumers alike, just a run-of-the-mill hardware item to be thrown into a Walkman or flashlight every few months or so.

 

Nowadays the script has been well-and-truly flipped. Ongoing research into new battery technology accounts for a major chunk of company R&D spend, and that’s not likely to change anytime soon. Indeed, some commentators consider Elon Musk’s Tesla brand to be not so much a car manufacturer, but a battery company instead.

 

The importance of the battery sector was brought into stark relief recently as global supply chains began to breakdown, with experts identifying a shortage of batteries as being one of the main drivers of the crisis.

 

For investors, the critical role of the battery industry presents many opportunities. If batteries are a make-or-break resource for a company, abundance or scarcity becomes a telling catalyst that market traders can use to gauge the health, and potential, of a given stock’s likely performance.

 

Here, we examine some key companies in the battery space. These firms aren’t always pure-play manufacturers in their own right, but either way, they all make for a closer look – and a possible investment – if the price just happens to be right.

 

Panasonic is a jack-of-all-trades electronics company, and has interests in the software, automation, robotics and construction industries, to name but a few. Moreover, the business is also a major producer of lithium-ion batteries for the EV space, and has been partnered with the automotive and clean energy firm Tesla (TSLA) for a number of years, notably at its new Nevada gigafactory.

 

The company’s deal with Tesla makes PCRFY a good option for investors eager for exposure to the battery market, but who also worry that TSLA is too much of a risk on its own right now. That mindset might seem counter-intuitive at the moment, since Tesla’s stock is up 40 percent the last year, while Panasonic is down by almost a third.

However, despite Tesla having a fairly diversified range of product segments, the company is still essentially a bet on the success of its vehicle business. Conversely, Panasonic isn’t anywhere near as liable to concentration risk, as its many mature and profitable business lines attest.

 

That said, Panasonic’s capital expenditure for its automotive segment has been high compared to its other operations. Indeed, it plowed $103.5 billion into the battery business during the fiscal year 2020, with little to show in terms of improvement in its operating margins. As things stand in the third quarter 2022, the firm’s business-wide margins are still declining.

 

On a more positive note, Panasonic is close to completing its plan to turn the firm into a business based on a holding company structure. It is hoped that this will mitigate the “conglomerate discount” it’s been laboring under in the past, and spark a re-rating from Wall Street that will ignite its price action into something approaching a positive trend.

 

Lithium-ion batteries aren’t the only viable energy option when it comes to generating power for electric vehicles. Another nascent technology could soon rival the status quo – and one that offers significant advantages over other kinds of rechargeable batteries.

 

This new type of electro-chemical cell technology is referred to as a quantum glass battery, and differs from a lithium-ion battery in that it uses a glass electrolyte, instead of a non-aqueous solution such as lithium hexafluorophosphate.

 

There are three main benefits that glass batteries have over their lithium-based cousins. The first is that glass electrolytes store energy at a higher density, meaning that they deliver more power than an equally-sized lithium-ion battery, which saves space in the vehicle design and extends the range a car can travel before having to be charged again.

Secondly, quantum glass batteries are not prone to catching fire, which saves costs for car manufacturers who would normally have to fit their vehicles with expensive fire-proof components and other fire-safe features.

 

And finally, these batteries also charge quicker, which is a massive boon for owners who are short on time.

 

QuantumScape (QS) recently secured a lucrative deal with Volkswagen to work on producing a battery for the car maker’s new Porsche 911 model, which helped spur its working capital growth by 44 percent this year.

 

The firm currently has no active revenue streams, as its focus is still on the research aspect of the project. Because of this, putting a price on the value of the company at this stage is difficult. However, given that Volkswagen is the parent company of so many other brands, if QS is successful, its scope for profitability could be huge.

 

The fact that QuantumScape is so far ahead of its peers is also reassuring, but it could be up to three years before one of its batteries is ready to roll-off the production line. The company’s stock is also down over 50 percent this year, which suggests that investors aren’t pricing in any potential upside just yet.

 

While QS is a pure-play glass battery manufacturer, the technology hasn’t gone unnoticed by larger companies either. For instance, Japanese multinational automotive firm, Toyota, also has its own glass battery operation too. Toyota is playing catch-up in the EV market, but recently announced its intention to invest $13.6 billion into the technology over the next ten years.

 

Toyota (TM) knows it will take a little while longer before it has a glass battery ready for mass production, and there will be difficulties scaling up the technology as well. However, the firm hopes to have its first solid-state battery-powered electric car available for sale by 2025.

 

Investors looking for a really well-run electric vehicle business could do worse than place a bet on the Chinese-owned BYD. The firm is a favorite of Warren Buffett, whose Berkshire Hathaway (BRK.B) holding company owns 7.7 percent of the brand. In fact, the stock is the tenth largest in the Oracle of Omaha’s portfolio, and Buffett’s most significant electric vehicle play to date.

 

It’s not hard to see why the firm is doing so well. BYD is an integrated EV company, and one of the best selling passenger and commercial vehicle retailers in China. The business manufactures a range of hybrid and electric cars, trucks and buses, as well as producing the batteries and semiconductors it uses in its vehicles.

 

From a valuation perspective, BYD has been pretty cheap for a while now – but has only gotten more so in the last few months. The company grew its vehicle sales by an impressive 220 percent year-on-year in 2021, which has helped spike its levered free cash flow margin to 16 percent.

 

Its forward price-to-sales multiple of 1.8x demonstrates its superior value when compared to, say, Tesla’s 12.1x, while its EBITDA growth of 18 percent is well in the lead against Volkswagen’s inferior 12 percent fraction.

 

BYD’s stock has also performed well the last twelve months, growing 28 percent since this time last year. However, a recent pullback of 23 percent over the previous six months might make for a good buying opportunity just now.