Most investors thinking about the fast-growing electrification trend think of electric vehicle (EV) stocks first. Whether it’s Tesla (NASDAQ:TSLA) or another major player, EV stocks are a go-to for many investors. That said, I would argue battery stocks are perhaps the better way to gain exposure to the electrification trend right now.
Battery technology is continuously improving, and will be a driving force behind the range and functionality users expect from their EVs. As newer batteries are developed, and greater user adoption is seen in this space, battery stocks stand to benefit in a more steady fashion from these strong secular tailwinds.
Yes, there are issues investors need to consider. A lack of charging infrastructure means adoption hasn’t been as great as many have forecast. That said, more durable and powerful batteries could ease range anxiety concerns. This is one of the key reasons many auto buyers stick with internal combustion engine vehicles.
With rising energy demand, it’s expected that by 2030 the world will need around 3.3 TWh of battery capacity. Given the strong growth expected in the EV sector, battery stocks stand to provide some of the greatest returns for investors looking to play this trend.
Here are three of the top battery stocks I think are worth buying right now.
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Last month was exceptionally good for renowned battery maker Panasonic (OTCMKTS:PCRFY). This is mainly due to the company’s strong earnings, which saw revenue exceed expectations by a wide margin.
As the primary provider of a significant portion of all EV batteries in the market, including market-leading EV maker Tesla, Panasonic is perhaps the single best way for long-term investors to play the growth of this sector. Notably, the company has more than 9% of the global share of the EV battery market.
Now, Tesla has announced plans to produce more batteries in-house. These plans have been delayed, and Panasonic remains as important as ever to this EV player. However, it’s also clear that other competitors are popping up all over the place, looking to eat Tesla’s lunch. As long as Panasonic is able to retain its status as an industry leader in EV batteries, this is a company I think has a long runway for growth long term.
Panasonic has also been extremely keen on aggressive expansion. This means the company will continue to invest its abundant cash flow in its growth, providing much better long-term returns to investors. Panasonic is already building a factory in Kansas. Another factory is likely to be set up soon in Oklahoma.
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One of the leaders in the development of solid-state batteries, QuantumScape (NYSE:QS) is a stock I’ve been watching for some time. In terms of battery stocks that one could say have been malfunctioning, QS stock certainly fits that list.
That said, this is a company which has proven itself as a high-flyer during bull markets. There’s tremendous growth potential for solid-state batteries relative to existing technology.
Now down approximately 80% from its peak, there’s certainly the case that this stock is worth buying from a valuation perspective. The risk-reward with such a stock is much improved. However, there’s always the potential of another 80% down from here (that’s how value traps work).
That said, if QuantumScape is able to produce solid-state batteries at scale, this is a business with truly unthinkable upside. QS is a more speculative bet on this list. For those bullish on the future of battery technology, this is one way to gain essentially a call option on solid-state batteries at these levels.
Lithium Americas (LAC)
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More of a “pick-and-shovel” way to play the impressive growth battery companies can provide is by investing in the underlying inputs into these batteries. Among the companies in this lithium mining space, Lithium Americas (NYSE:LAC) remains one of my top picks right now.
Currently, the vast majority of all batteries produced for electric vehicles and most other electrified segments of the economy are lithium-ion. As demand for lithium-ion batteries continues to rise exponentially, the raw commodities that are needed to support continuing battery development will become more and more scarce.
The great news for investors is that Lithium Americas is one of the global leaders in lithium mining. In addition to ownership in Argentinian mines, the company has an impressive Thacker Pass mine in Nevada which will be a significant supplier of lithium for domestic markets moving forward.
Given the geopolitical environment right now, and the fact that most of the industrial-grade lithium produced comes out of China, this on-shoring of production is great from a political standpoint. As far as companies with moats in the lithium mining space are concerned, Lithium Americas is a great way to build a long-term position at these lower levels.
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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