Amid the search for growth in the EV sector, there are plenty of angles investors are focusing in on. Whether it’s renewable energy to power these vehicles, battery companies supplying the technology used in EVs, or the electric vehicle manufacturers themselves, there are plenty of ways to play this space. Personally, I think battery suppliers provide intriguing upside potential and am on the lookout for battery stocks to buy right now.
Approximately 30% of an electric vehicle’s value is based on the cost of its battery, according to a report by the International Energy Agency. This itself is reason enough to invest in battery stocks. That is, for those bullish on growth in the EV sector relative to traditional internal combustion engine vehicles. With a broad selloff leading to declines across the sector, there are now plenty of battery stocks to buy that are looking more attractive than ever.
The consensus is now for the overall EV market to grow to a massive $400 billion+ market by 2028. Of course, this is exciting news for investors in battery stocks as well. As this market grows, so too does the overall total addressable market of battery providers. It’s a picks-and-shovels play on a fast-growing market worth considering. Here are three top battery stocks to buy for long-term investors looking to add risk before the end of the year.
The biggest issue with electric vehicles, and lithium-ion batteries, in particular, are their range. In order for EV buyers to avoid range anxiety and jump on the bandwagon, improvements in battery technology are really necessary to accelerate the next leg of growth in this sector.
Thus, many investors have shifted their focus in recent years to companies advancing battery technology. One such company that is on the radar of many growth investors right now is QuantumScape (NYSE:QS). That’s because QuantumScape happens to be among the leaders in researching and developing solid-state batteries. Unlike traditional lithium-ion batteries, solid-state batteries use a ceramic layer between the cathode and anode of a battery, rather than liquid. This makes the batteries denser, allowing for more stored charge (more range) and faster charging times.
It’s expected QuantumScape will have a solid-state battery ready for commercial production by 2024. Thus, while still a pre-revenue company (and therefore highly risky in this market), this is a stock some investors continue to be bullish on. In fact, QuantumScape has garnered investments from both Bill Gates and Volkswagen (OTCMKTS:VWAGY), so there’s likely something here.
As far as battery stocks to buy are concerned, QuantumScape is perhaps among the more speculative bets. But for those looking to bet on innovation in this space, it’s certainly a compelling option.
Next on the list of battery stocks to buy is Albermarle (NYSE:ALB). A large-cap stock, Albermarle is a global chemical producer with several subsidiaries across Europe and the U.S. Its products are used to manufacture lithium batteries used in EVs and other segments. Two primary chemicals that Albemarle produces are lithium hydroxide and lithium carbonate.
Lithium hydroxide helps produce lithium ions while charging, whereas lithium carbonate helps generate lithium ions during discharge. Albemarle has production plants in Australia, Chile, and China to accommodate increasing demand over time. With these production facilities, Albermarle has made clear and significant investments in betting on long-term rising demand for this space.
Notably, Albermarle has shown strength in terms of its top and bottom-line growth during its recent Q2 earnings. The company’s revenue increased by a whopping 91%. However, Albermarle’s earnings per share grew by 288%. This indicates both strong margins, as well as a sustainable business model for long-term investors.
I think Biden’s recent pro-EV agenda could bode well for Albermarle long-term. As more folks are drawn to the EV sector, Albermarle’s core business will undoubtedly provide pricing power. That’s the kind of company I want to invest in long-term.
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Last on our list of battery stocks to buy, we have Honeywell (NASDAQ:HON). This mega-cap diversified company is among the leaders in a range of business lines. Notably, many of these business lines are outside of the battery sector, providing investors diversification relative to the other more focused picks on this list.
That said, Honeywell is also a company with a battery division that deserves a look. The company’s investments in R&D have provided investors with a more speculative bet on growth in this sector. That’s due to the company’s new flow battery technology, which is poised to be a safer and more environmentally-friendly alternative to existing batteries. These flow batteries also tend to last longer than traditional lithium-ion batteries, posing an intriguing growth thesis for long-term investors.
Of course, Honeywell’s size makes it an appropriate investment for more conservative or institutional investors. Thus, for those looking for a company with the deep pockets to truly develop its innovative technology, this may be the safest bet. With the company’s strong recent earnings supporting a dividend hike of more than 5% this past quarter, Honeywell is certainly among the more blue-chip options in the list of battery stocks to consider right now.
On the date of publication, Chris MacDonald 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.
Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.
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