Tesla Inc. (TSLA +3.14%) has been one of the biggest success stories in the stock market since the Great Recession.
Since the innovative carmaker went public in 2010, its shares have jumped more than 1,200%, as the company has proven there's a demand for appealing electric cars and created an enviable brand. Its fans are so in love with its products that they are willing to sit on year-long waiting lists to get a new Model 3. Tesla's potential to become a major operator in the renewable energy industry is another big reason the company has a market value rivaling those of traditional automakers like Ford and General Motors.
That mammoth share price climb is obvious now that the 12-bagger is in our rear-view mirrors. But such winners also prove the point that stocks with that kind of potential are out there, waiting to be discovered, and sharp observers can find them before they soar. To help you find some of them, we asked three of our writers to pick a company they think has a chance at being the next Tesla. Below, they explain why they chose Delphi Automotive (DLPH +0.00%), Alphabet (GOOG +0.04%) (GOOGL 0.04%), and XPO Logistics (XPO 2.22%).
The new Tesla Semi. Image source: Tesla.
A sneaky driverless car stock
Daniel Miller (Delphi Automotive): When it comes to Tesla, there's no question the hype has been accelerating. In fact, over the past five years, its stock is up roughly 850%, but while it continues to burn through cash in pursuit of its ambitious strategies, a company such as Delphi Automotive could quietly outperform Tesla over the next decade.
Delphi Automotive -- which is no slouch, as its stock is up more than 200% over the past five years -- has become a popular investment among those looking to ride the wave of autonomous vehicle technology. It even recently announced plans to spin off its powertrain division and rename the remaining company "Aptiv." Delphi is already a leader in advanced driver-assist systems, which will be crucial components in the self-driving vehicles of tomorrow, and has built strategic partnerships with companies such as Intel and BMW.
The spinoff should unlock value for investors, as the technology heavy units that will move forward as Aptiv -- rather than its traditional automotive assets -- should command a higher price-to-earnings multiple. Though it has traded consistently higher in recent years, the stock is currently sitting at a forward price-to-earnings ratio of only 14. Expect that to jump once the company hives off the powertrain unit, develops additional driverless vehicle technology, and inks more partnerships with major automakers and tech companies.
The future of driving
Danny Vena (Alphabet): There's no question that early investors in Tesla have been richly rewarded, and the company is well known for its innovation. However, the future of driving may not include drivers at all.
Alphabet, known for its ubiquitous Google search engine, has been at the forefront of both self-driving cars and the underlying artificial intelligence that controls them. It was an early pioneer in AI, and its autonomous driving unit Waymo has recently been spun out from its moonshots division.
Waymo has filed more than 2,000 self-driving patents, and its test vehicles recently exceeded 3.5 million autonomous miles traveled on public roads in 20 U.S. cities. Waymo has been shuttling members of the public to work, shopping, and soccer practice via its early rider program in the area around Phoenix, Arizona. The program recently achieved full autonomy, removing the backup drivers from its cars.
The potential size of the autonomous vehicle market is staggering. While estimates vary, research company IHS Markit forecasts 76 million driverless vehicles will be sold between now and 2035. Society may be on the verge of creating a global passenger economy that could be worth $7 trillion, according to a study by Strategy Analytics.
Waymo is preparing for this future, and has partnered with the Avis Budget Group (CAR 6.19%) to provide cleaning and maintenance services for its future fleet. Meanwhile, Alphabet has invested as much as $1 billion in ride hailing service Lyft, an obvious potential purchaser of Waymo's technology.
In many ways, Waymo is uniquely positioned to benefit from the pending automotive paradigm shift, and in part due to that advantage, Alphabet's returns could put Tesla's to shame.
Connecting it all
Jeremy Bowman (XPO Logistics): XPO Logistics may not seem to have a direct connection to Tesla the way Delphi and Alphabet do, but the up-and-coming force in "last-mile" delivery could also benefit as autonomous vehicles take over.
Led by CEO Brad Jacobs, one of the best operators in the business, XPO has gained nearly 400% in the last five years as it expands in logistics and delivery by acquiring trucking companies, logistics providers, and marketing specialists. With the recent unveiling of Tesla's Semi, the two industries could be on a mutually beneficial collision course.
Investors cheered recently when XPO announced that was ready to look for M&A opportunities again after it took a breather to absorb and optimize the 17 acquisitions it made since 2012. XPO specializes in less-than-truckload shipments, and is the leader in last-mile shipping for heavy appliances like dishwashers and washing machines. Outside of the U.S., where e-commerce is in earlier stages, XPO's opportunity could be even bigger.
Jacobs predicted driverless trucks will go mainstream within a decade, and thinks initial cost-savings from the technology should come even sooner. That should accelerate the retail transition to e-commerce, boosting XPO's business and extending its long-tail growth opportunities.
While XPO's valuation remains high, its earnings per share quadrupled in its most recent quarter, and momentum should pick up once it starts to make acquisitions again. XPO's stock performance has matched Tesla's performance since the electric carmaker's 2010 IPO, but with demand for last-mile delivery continuing to grow, it could have the edge from here.
