Invest in cars and ride-sharing services.
The auto industry is in the process of one of the largest overhauls in its history. Several primary trends are shaping future mobility, including connected vehicles, autonomous vehicles, electric vehicles and ride-sharing services. Bank of America Corp. estimates that electric vehicle sales will grow from 1 percent of global car sales in 2017 to 90 percent by 2050. There are plenty of companies with exposure to future mobility, but not all of their stocks make good long-term investments. Here are eight future mobility winners and losers chosen by Bank of America’s analyst team.
Winner: Yandex NV (ticker: YNDX)
Yandex is one of only a handful of companies that is effectively competing with Google (GOOG, GOOGL). Yandex holds roughly a 65 percent market share of online advertising and paid search in Russia. In August, Yandex began testing autonomous vehicles, and it has the data collection capabilities and resources to be an early leader in Russian driverless transportation. Analyst Cesar Tiron says the market is too pessimistic about the potential negative impact of regulations and says 2019 consensus earnings estimates of 14.5 percent are too low. Bank of America has a “buy” rating and $43 price target for YNDX stock.
Winner: Sociedad Química y Minera de Chile (SQM)
SQM is a Chilean chemical company and is the world’s largest supplier of iodine, lithium and specialty plant nutrients. SQM produces about 30 percent of the world’s lithium, a major component in today’s electric vehicle batteries. Not only is SQM one of the lowest-cost lithium producers, analyst Isabella Simonato says SQM produces a high-grade product and has the capacity to scale its production significantly if needed. Oversupply has hurt lithium prices in 2018, but Simonato says this downside is limited due to surging global demand. Bank of America has a “buy” rating and $57 price target for SQM stock.
Winner: Sensata Technologies Holding (ST)
Sensata Technologies manufactures sensing technology, such as pressure sensors, position sensors and force sensors. The data collected and used to keep automobile passengers safe is only as good as the sensors that are collecting it, and the trend toward connectivity in the auto industry is good news for Sensata. The company has been gaining market share in both the U.S. and China, and analyst Wamsi Mohan says Sensata has the potential to expand outside its current verticals in the long term. Bank of America has a “buy” rating and $62 price target for ST stock.
Winner: Nvidia Corp. (NVDA)
Investors have started to realize Nvidia is much more than a computer gaming company. The Nvidia Drive platform can help automobiles capture real-time data from up to 16 sensors simultaneously. Its DGX data center systems helps businesses implement artificial intelligence , its Constellation platform allows for safe simulation and testing of models, and its Drive AGX product allows automated vehicle systems to make decisions at superhuman speed. Analyst Vivek Arya says Nvidia’s sales and earnings momentum is unparalleled within the semiconductor group. Bank of America has a “buy” rating and $300 price target for NVDA stock.
Winner: TE Connectivity Ltd. (TEL)
TE Connectivity is the world’s largest producer of passive electronic components with 50 percent of its sales coming from connectors. Roughly 30 percent of the company’s total sales go to the auto industry with another 19 percent going to the telecom market. Mohan says the more features the auto industry adds to vehicles, the greater demand there will be for TE products. Increases in auto safety, environmental consciousness and connectivity are all bullish long-term trends for TE. Bank of America has a “buy” rating and $117 price target for TEL stock.
Loser: Gentex Corp. (GNTX)
Gentex is a leader in automated rearview mirrors and camera-based driver assistance systems. Analyst John Murphy says the stock is a risky bet given the potential headwinds coming in the next several quarters. Murphy says the international trade war has created significant cost risks for Gentex and could easily dampen international mirror demand. In the long term, Murphy says innovative new sensing technologies developed by competitors could weigh on margins and earnings. Bank of America has an “underperform” rating and $12.50 price target for GBTX stock.
Loser: BorgWarner (BWA)
BorgWarner is an auto parts supplier that specializes in powertrain products, including manual and automatic transmissions and their components. BorgWarner recently reiterated its full-year financial guidance, which Murphy says is good news given the cyclical slowdown in the auto market that has played out in 2018. However, he says a continued slowdown in global volumes, rising raw materials costs and a potential deterioration in earnings growth, earnings multiples and market sentiment will limit its upside for at least the next several years. Bank of America has a “neutral” rating and $45 price target.
Loser: Tesla (TSLA)
Including Tesla as a future mobility loser has more to do with its limited potential for long-term profitability and its stock’s lofty valuation than it does with its products. Murphy says the more vehicles Tesla sells, the lower its average sales price and margins will go. He says until Tesla can demonstrate that it will not ultimately end up as another low-margin auto manufacturer, TSLA stock doesn’t deserve to trade at such a high valuation relative to peers. Bank of America has an “underperform” rating and $220 price target for TSLA stock.
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