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If You Like Rivian, You'll Love These 2 Stocks

By David Jagielski – Dec 8, 2021 at 6:38AM

Key Points

  • Sundial Growers and BlackBerry Limited are much smaller companies with significant potential.
  • The cannabis industry is experiencing major growth, and Sundial provides investors an easy way to tap into those opportunities.
  • BlackBerry can benefit from the electric vehicle market's growth without taking on the risk of being an auto manufacturer itself.

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They are in high-growth sectors, but their valuations are minuscule compared to the automaker.

Electric vehicle maker Rivian Automotive has been one of the most popular IPOs this fall. With Rivian sitting at a valuation of nearly $100 billion, investors are paying a lot for potential; the company hasn't even reported any revenue. Although it is in an attractive sector that has significant growth opportunities, the stock is risky given the business hasn't even proven itself yet.

For investors who see an opportunity in Rivian, there are two other meme stocks to consider that could generate better returns over the long run without the same level of risk: Sundial Growers (SNDL -3.21%) and BlackBerry Limited (BB -1.75%).

Team of traders working in an office.

Image source: Getty Images.

1. Sundial Growers

Pot producer Sundial Growers is in a burgeoning cannabis industry that gets bigger with every new geographic market that opens up. Globally, analysts from cannabis research company BDSA project the industry could be worth nearly $56 billion by 2026, growing at a compound annual growth rate (CAGR) of 17% until then. For comparison's sake, the electric vehicle market is expected to grow at a CAGR of more than 24% until 2028. 

However, those cannabis projections could get bigger if the U.S. legalizes marijuana. Right now, the substance is still under Schedule I, so even just researching industry prospects is difficult. There are significant opportunities here, however, and a company like Sundial Growers could offer investors a ticket to cash in on that potential. This isn't the safest stock in the industry, but Sundial has been popular with meme investors this year and has the potential to take off.

What could help in attracting more investors is the company's pursuit of deals. Just this year, Sundial has invested in a cannabis edibles company, launched a joint venture with a private equity firm that's focused on investment opportunities in the marijuana sector, and has acquired two retail businesses (one that's in the cannabis sector and another that has exposure to both marijuana and alcohol).

And the business itself is coming off a strong third quarter in which Sundial posted an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) profit of 10.5 million Canadian dollars for the period ending Sept. 30 -- something that some of the bigger names in the industry still struggle to do today.

Sundial is risky, but it's not nearly as dangerous as Rivian is. With a market cap of just over $1.1 billion, Sundial is a fraction of the size, yet it possesses many of the same high-growth opportunities that have attracted investors to the electric vehicle stock.

2. BlackBerry

Another popular meme stock to consider buying is BlackBerry. The company once known for its handsets has transitioned to cybersecurity and enterprise solutions. It also has a software platform, QNX, that as of June had more than 195 million vehicles using it. BlackBerry calls QNX the "market leader for safety-certified embedded software in automotive." It features advanced driver assistance systems and digital cockpits. BlackBerry says that nearly all (24 out of 25) of the top electric vehicle makers now use its QNX system.

Although BlackBerry isn't in the business of physically making electric vehicles, by providing software it can offer investors the next best thing: benefiting from the industry's growth without taking on the risk of building high-priced vehicles and having to compete with a popular brand like Tesla. There's still some risk with BlackBerry, but the company's business is in solid shape and can be a much safer long-term hold than Rivian.

Over the past 12 months, BlackBerry has reported $777 million in revenue. And although its bottom line is still in the red, what's key is that the company's gross margin percentage of 68% is incredibly strong. BlackBerry has also generated free cash flow totaling $21 million during that time frame.

Sales growth hasn't come easy for the company -- for the period ending Aug. 31, its top line totaled $175 million and rose by just $1 million from the previous quarter -- but BlackBerry does have the pieces in place to make it successful over the long run. The electric vehicle industry is still in its early stages, and investing in BlackBerry can be a safe way to get exposure to it. At a market cap of just over $5 billion, its valuation is also just a fraction of Rivian's.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tesla. The Motley Fool recommends BlackBerry. The Motley Fool has a disclosure policy.

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