Market corrections offer great opportunities to buy top stocks at bargain prices. Yet investors need to do their research, as not all stocks that have fallen are buys. There are genuine concerns behind the steep fall of some stocks.
Let's look at one electric vehicle (EV) stock that looks very attractive right now, and another one that's best avoided.
To buy: Ford
Though Ford (F -1.92%) isn't the first name that comes to mind when talking about EVs, the company is laser-focused on boosting its EV business growth. Ford's target is for half of its global sales volume to be all-electric by 2030. To achieve this goal, the company plans to invest $50 billion in EVs by 2026. Ford's battery electric sales rose 222% in May over last year. The company has started deliveries of its much-awaited electric pickup truck, the F-150 Lightning.
Image source: Ford.
Ford is taking several steps to expand its EV business. It's looking at increased vertical integration over the medium and long term to secure its battery supply. It's hiring the needed talent, streamlining its dealer network to make it more cost-competitive, and planning a small number of compelling, high-volume EV models.
What kind of margins Ford will generate from its EV business remains to be seen. However, at a price-to-earnings ratio of around 4.9, the stock is trading at an attractive valuation compared to top traditional automakers. Indeed, compared to pure-play EV makers, Ford's stock looks super cheap:
F PE Ratio data by YCharts.
Right now, the market isn't valuing Ford as an EV stock. If the company manages to achieve what it's aiming for, there's an opportunity for significant expansion in its valuation multiples. In short, Ford stock's 33% year-to-date drop offers an attractive buying opportunity for long-term investors.
To avoid: Lordstown Motors
Lordstown Motors (RIDE -1.70%) has been struggling for a year now, after being the target of a short-seller. The company managed to close the deal of selling its production facility to Foxconn Technology Group, now officially Hon Hai Precision Industry (HNHPF 2.17%), to raise much-needed capital. However, that alone is not enough to solve Lordstown's problems; the company still needs to raise $150 million before it can start commercial production.
Unfortunately, at the current stock price, raising funds through issuing equity isn't an option. In 2021, Lordstown's number of outstanding shares already rose by 28 million, to 196.4 million.
Lordstown is looking for ways to raise the needed cash to start production. The critical situation means that the terms of any funding won't be very favorable for the company, or its shareholders. What's more, several automakers, including Ford and Rivian Automotive, have already brought electric pickup trucks to the market. So, buyers may not be too keen to buy from Lordstown, considering the company's past record.
All the above are serious red flags. Investors can surely find better EV stocks than Lordstown Motors.
