Everything Investors Need to Know About Auto Stocks - Barron's

The Ocean electric sports-utility vehicle gives Fisker a key competitive advantage, says Bank of America’s... — The Ocean electric sports-utility vehicle gives Fisker a key competitive advantage, says Bank of America’s John Murphy.
Bridget Bennett/Bloomberg

Bank of America published a smorgasbord of auto research Tuesday—quarterly earnings, electric vehicle start-ups, self-driving lidar technology, and new picks and pans to spice things up.

Here’s what investors need to know:

Electric Vehicles

Analyst John Murphy launched coverage of EV startups Fisker (ticker: FSR), Canoo (GOEV) and Lordstown Motors (RIDE).

He rates Lordstown Hold and has a $13 price target for the stock. Shares are trading under $9, however, after a short seller published a negative research report and after many SPAC-related stocks have sold off in recent weeks.

That’s the tamest of the new ratings. Murphy rates Canoo stock Sell and has a $6 price target. Canoo shocked investors on its recent quarterly conference call, adjusting its business model and withdrawing long term financial projections. “Altogether, the shift in strategy appears logical,” wrote Murphy adding, “the change introduces further risk around the company’s ability to execute in a timely fashion.”

Murphy, however, likes Fisker shares, rating them Buy with a $31 price target. Fisker stock is trading around $13 a share. The company’s “key competitive advantages,” for Murphy, include an attractive Ocean sports-utility vehicle and its contract manufacturing strategy. Fisker is having others, such as Magna International (MGA), build its cars.

Lidar

Lidar is short for laser-based radar, a key enabling technology for self-driving cars. Analyst Aileen Smith is OK with Luminar Technologies (LAZR) and not OK with Velodyne Lidar (VLDR).

She rates Velodyne stock Sell with a $14 price target. Luminar shares gets a Hold rating and $23 price target.

The Luminar target is about 30% above where the stock trades, but “AutoTech is the new BioTech,” writes Smith. These new, lidar stocks are risk stocks with billion-dollar valuations and not a lot of revenue. Investors should expect volatility. What’s more, not every lidar stock will be a winner.

Coming Earnings

As for coming earnings reports, Murphy expects strong first-quarter results up and down the automotive value chain.

“Importantly, we expect solid results despite ongoing volatility in the macroeconomic backdrop, which has been characterized by remarkably resilient demand...but increasingly challenged supply,” he wrote.

The global semiconductor shortage is a supply problem, but its pushing up pricing and vehicle mix. Vehicle mix is improving because auto makers are allocating parts to their most profitable vehicles.

Murphy rates Ford Motor (F), General Motors (GM) and Ferrar i (RACE) stock Buy. He has a Hold rating on Tesla (TSLA).

And the analyst likes car-dealer stocks, rating six out of seven under his coverage Buy. The only Hold-rated dealer is Lithia Motors (LAD).

American Axle & Manufacturing (AXL), BorgWarner (BWA) and Magna International are his Buy-rated auto suppliers.

Traditional auto stocks, for the most part, have had a strong 2021. Ford, GM and Magna shares, for instance, are all up about 30% year to date, better than comparable gains of the S&P 500 and Dow Jones Industrial Average.

Write to Al Root at allen.root@dowjones.com

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