Electric Cars Head Back To The Future

Yesterday was a solid session for the market, which saw all the major indices higher, led by the Russell 2000. The S&P 500 was powered by Technology and Health Care. The former was powered by software and semiconductor names, while earnings and deal news propelled the latter.

The S&P 500 has raced backward to the highest level since February 21st.

Market breadth was very impressive, especially names reaching new 52-week high levels. On the NASDAQ, the 227 new highs are the highest since February 19^th. But it’s the up volume to the down volume that blows me away. A 3:1 ratio with a three billion up volume is remarkable.

Electric Cars and Trucks

When I was a kid, I had an electric slot car game that was fun. My car would never stay on the track because I took those turns around the corners too fast. It was really cool. If you told me back then that one day we would be on the verge of electric vehicles everywhere, I would not have believed you. 

Plus, I was 10 years old.

Yet, the irony is the impending wave of electric cars is not new. On the contrary, the auto market is about to go back to the future.

Back in 1900, electric-powered vehicles had a much larger market share than gasoline and only slightly less than steam. I’ve read about electric delivery trucks driven by 14-year-old boys in the early 1900, and now it’s all rushing back (the vehicles, not the 14-year-old drivers).

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I have followed this space for years. Long-time subscribers might remember my fascination with Plug Power (PLUG), Capstone Turbine Corp (CPST), and Ballard Power Systems (BLDP); more recently, my electric watch list has been featured in trading services. While I dislike the idea of global governments forcing consumers to buy electric, it’s going to happen like a hockey stick, and long-term ‘buy and hold’ investors will make a lot of money if they have the right names:

Electric Watch List

• (WKHS) Workhorse Group Inc
• (NKLA) Nikola Corp
• (DPHC) Diamondpeak Holdings
• (NIO) NIO Inc
• (BLDP) Ballard Power Systems
• (PLUG) Plug Power
• (FCEL) FuelCell Energy
• (CPST) Capstone Turbine
• (LI) Li Auto
• (TSLA) Telsa
• (SOLO) Electrameccanica Vehicles Corp

Portfolio Approach

We are going long a new position in Industrial and lowering our cash to zero.  If you are not a subscriber to the Hotline, contact your account representative or email Info@wstreet.com to get started today. 

Today’s Session

The last couple of months there have been several manufacturing reports indicating businesses were looking for a sharp rebound in six months. There is however growing evidence the rebound is happening much sooner.

On Friday, the Chicago PMI report came in at 51.9 smashing the 43.5 estimate and surging from 36.6 June read.

Yesterday the ISM Manufacturing PMI for the U.S. rose to 54.2 in July 2020 from 52.6 in the previous month and above market expectations of 53.6.

Like the Chicago release, the national figure was powered by strong new orders +5.1 percentage points to 61.5 and production +4.8 percentage points to 62.1.  Those are the two most important components of the report (30% and 25%, respectively).

Other components (percentage point changes)

• Employment 44.3 +2.2
• Supply Deliveries 55.6 -1.1
• Inventories 47.0 -3.5

Rising three months in a row, to the highest rate of change since March 2019, the report is very encouraging.

To see the chart, click here.

There are distinct winners and losers.

• Transportation equipment managers say overall business is still down 70% and they will have to lay off 30% or more for up to three months.
• Computer and electronic products manufacturers say business has resumed at nearly 100%.
• Food and beverage managers say whether demand continues to improve, or shift, will be dictated by students returning to school or not.