I found it hard not to stare at my screen the other day as oil prices went negative.
Interest rates threatened to head in that direction last month. What other major piece of the economy is next to go negative?
Cars and trucks, in a sense.
Like oil and money right now, there’s lots of supply and zero demand.
Analysts at J.D. Power expect auto sales to plunge up to 80% this month.
Bloomberg noted recently that used car sales fell more than 60% already, just in the last week of March.
Manufacturers upped their rebates by record amounts, but they’re getting few takers for obvious reasons.
However, there’s a big investment opportunity coming amid the rising calls for a new federal “Cash for Clunkers” car-buying program.
And you need to buy shares of one company now before its price soars into the stratosphere.
Cash for Clunkers, the Sequel
Ford said it wants a new cash for clunkers program to happen.
And a Morgan Stanley analyst told Barron’s he thinks it’s already a foregone conclusion.
But instead of a $3 billion package like we saw in the original 2008-2009 federal program, this one could be up to $10 billion, according to the analyst’s calculations.
He sees it driving up to $50 billion in vehicle purchases — or roughly four million vehicles on a seasonally-adjusted rate through next year.
And it’s not just U.S. automakers who want the program. Germany’s car industry is campaigning for a similar package with its government.
But the stock that stands to benefit the most from a global Cash for Clunkers trend isn’t so obvious.
Profit From the Electric Vehicle Boom
Albemarle Corp. (NYSE: ALB) is the largest producer of lithium, as in the lithium-ion batteries used in electric vehicles (EVs).
With a price-to-earnings ratio of 13, the stock is trading at one of its cheapest valuations in the last 20 years.
ALB Fell to $58 as Car Sales Plummeted
(Source: TradingView.com)
Yes, Albemarle might seem like an odd choice for a stock when markets are pricing fossil fuel at giveaway prices.
But let’s remember, carmakers have already sunk billions into their EV platforms. They need a return on their investments.
Just last month, General Motors said it wanted to spend another $20 billion on new EVs (plus a $2.3 billion joint venture with LG Chem, the giant battery maker).
Ford said it planned to invest almost $1.5 billion to refit two of its Michigan plants toward building autonomous EVs.
In fact, Albemarle expects a near-600% increase in demand for lithium-ion batteries over the next five years.
So if you’re an auto manufacturer — and Uncle Sam is paying the bill — what kind of clunkers program would you (and your shareholders) want?
Lots of Votes Are on the Line
Ironically enough, Senator Chuck Schumer (D-NY) proposed an EV-based Cash for Clunkers program last October, long before the current crisis.
It didn’t fly in the GOP-controlled chamber. Nor would the White House have supported such a measure.
Then again, economic catastrophes have a way of bending political viewpoints when there are lots of votes on the line.
The worse the economy gets, the more vehicle sales plummet. The more that happens, the more economic and political incentive there is for a supersized, to-the-max Cash for Clunkers program.
And EVs — with Albemarle’s lithium inside them — will be at its core.
Best of Good Buys,
Editor, Total Wealth Insider
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