However, Tesla shares are currently trading at 97 times operating cash flow and 12.2 times sales, which means they appear astronomically overvalued. With that in mind, we asked three of our Motley Fool contributors what auto industry-related actions they would recommend instead. They came back with Dana Incorporated (NYSE: DAN), Clean energy fuels (NASDAQ: CLNE), and 3M (NYSE: MMM). Here’s why.
An experienced auto parts supplier to charge around
Scott Levine (Dana Incorporated): Given Tesla’s current price, investors with an appetite for an electric vehicle (EV) stock – in addition to a good deal – would be in a better position to look elsewhere. Fortunately, they don’t have to search for long. Dana Incorporated is a worthy consideration – and one that has a connection to Tesla. In 2018, Diarmuid B. O’Connell, who had served as Tesla’s vice president of business development for 11 years, joined Dana’s board of directors.
For over 115 years, Dana has provided drivetrain solutions to the automotive industry, but that is hardly bogged down in the past. Since 2017, Dana has completed eight acquisitions, strengthening its position as a supplier in the EV market. Two months ago, for example, Dana acquired Rational Motion, which specializes in the integration of battery-electric vehicles for trucks and buses. And the acquisitions seem to be paying off. In addition to other components, Dana supplies Hyliion, which plans to go public in 2020 through a merger with Acquisition of turtles (NYSE: SHLL), with auxiliary system engines acquired since its acquisition in January 2019 from the SME group.
Currently, Dana’s stock is trading at 4.5 times operating cash flow, down from its five-year average multiple of 5.8, as investors are pessimistic about the ability of the company to thrive for the remainder of a difficult 2020. , for example, the company reported sales of $ 3 billion – about 33% less than it reported during the same period in 2019. However, the company has certainly weathered previous downturns over the course of its 115 year history, and I believe the company will recover. Analysts seem to agree, predicting that the company will report earnings per share of $ 0.24 in 2020 and $ 1.82 in 2021. For patient investors keen on exposure to the EV market, Dana appears to be a compelling opportunity.
Beat Tesla to clean up the trucking
John Bromels (Clean energy fuels): Tesla CEO Elon Musk is targeting the trucking industry, hoping to begin production of the fully electric Tesla Semi in 2021. Rival Nikola hopes to deploy its own semi-trailer powered by a hydrogen fuel cell in 2023.
However, you don’t have to wait that long to invest in clean fuel for trucking, thanks to clean energy fuels. The company sells the only zero-emission truck refueling option available today: renewable natural gas (RNG). While Clean Energy Fuels also offers regular natural gas for specialty trucks that can use it, its most popular product right now is Redeem, a substitute for RNG diesel. Clean Energy Fuels captures methane from large emitters like dairies and landfills, then transforms it into cleaner-burning RNG fuel. Because fuel combustion generates less greenhouse gases than captured emissions, the entire process is often carbon negative.
Redeem is popular with companies that own large fleets of trucks but are trying to reduce their carbon footprint. Sender UPS, for example, ordered 170 million gallon equivalent of Redeem in 2019. Clean Energy Fuels has also successfully introduced its fuels to trucks serving the Port of Los Angeles. Recently announced RNG partnership with an oil major Chevron raises Clean Energy’s share price. But this green energy specialist still has a lot of leeway, now that the clean fuel market for transport seems to finally take off.
An unconventional automotive choice
Lee Samaha (3M): The industrial conglomerate may not seem like the most obvious of the auto-related stocks, but the industry is a major factor in turning its revenue and profit outlook. As such, 3M stock offers a good and relatively safe way to gain exposure to an improving auto market in 2021. Add in a 3.6% dividend yield and the fact that the stock is trading in 18. , 2 times the estimated free cash flow in 2020, and 3M is a good option for value investors.
3M’s exposure to the automotive market is shown in the table below. Business groups with high exposure to auto markets were reasonable for 57% of the $ 995 million year-over-year drop in revenue. 3M’s auto business tends to be production-related, and auto plant closures linked to COVID-19 led 3M to disappoint investors in the second quarter.
|3M Business Group revenue||T2 2020||T2 2019||Change|
|Automotive aftermarket||$ 203 million||$ 304 million||(101) million dollars|
|Industrial adhesives and tapes||$ 552 million||$ 674 million||(122) million dollars|
|Advanced materials||$ 236 million||$ 331 million||(95) million dollars|
|Automotive and aerospace||$ 268 million||$ 478 million||(210) million dollars|
|Transport security||$ 222 million||$ 265 million||(43) million dollars|
|Total||$ 7,176 million||$ 8171 million||(995) million dollars|
That said, auto production is expected to improve strongly in 2021 and 3M is expected to be a beneficiary. In addition, it is worth noting the highly unusual nature of the COVID-19-inspired recession. There has not been a gradual decline, so 3M customers are very likely to have a high inventory level (relative to what second quarter sales would be). As such, it can be a quarter or two before customers start to replenish their inventory, and when they do, the pick-up in orders can be strong.
Meanwhile, 3M management told investors they saw an overall improvement in sales at the start of the third quarter. In addition, it also appears to be regaining its pricing power with its products – selling prices rose 0.5% in the second quarter, even as the company suffered a 12.2% drop in sales of its products. year to year. Finally, management continues to reposition the company as it attempts to regain its former glory.
All in all, 3M still has a lot of work to do to convince investors that it’s back on track, but on a risk / reward basis it looks like good value.