You may have noticed that “value” stocks are doing better than “growth” stocks this year by a healthy margin.
But when you think about it, these distinctions are not really that important anymore. Value now means investing in the basics that don’t change much over time, while growth is now about the future and rapid change. One is a bet on continuity, and the other is a bet on disruption.
Both involve risk but in different ways. Value stocks are at risk if predictable patterns change. Growth stocks are a gamble if the expected future is delayed or never arrives.
Think about Apple (APPL). At first, the stock was futuristic and an incredible growth stock. Then it transformed into a predictable consumer brand, with a profitable closed ecosystem and recurring revenue.
Rather than value and growth, the Cabot Explorer separates recommended stocks into disrupting and dominating stocks. Your portfolio should have both types of stocks, with the blend dependent on your age, risk tolerance and goals.
You can also use both dominating and disruptive stocks to play the same investment theme or sector.
Take electric vehicles (EVs) that, for a long time, were seen as disruptive but are moving to dominating in certain countries. In America, Tesla (TLSA) was the classic EV disrupter but quickly dominated the high end of this market with almost half its sales in sunny California.
Most Americans, however, had to be lured to EVs through incentives that have become political footballs. The $7,500 federal EV tax credit ended last September, and this, combined with less strict fuel-economy regulations, has led to declining interest in EVs and rising losses as automakers scale back and close EV models and plants.
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Now, with the Iran conflict driving gas prices beyond $4 a gallon, interest is back. Car-shopping platforms such as Cars.com and Edmunds say they have seen an uptick in EV interest as Americans adjust to life with gas over $4 a gallon, while auto executives say a renewed focus on fuel efficiency could mark the bottom of the EV meltdown. Visitors to Edmunds’ website have risen nearly to what it was before tax incentives ended last year.
All the major auto companies must make tough decisions. Ford (F) has pulled back from its once-touted F-150 Lightning EV due to changing EV demand. Toyota (TM) and most of the Japanese automakers are tilting to hybrids.
The Chinese are all in on EVs as they seek to become an “Electro State.” China imports much of its oil, and most of it comes through the Strait of Hormuz. About half of all auto sales in China are EVs, and this grows each year.
The competition is fierce, with BYD (BYDDY) dominating sales but with almost 100 competitors disrupting the market, leading to intense competition.
Essentially, an EV comes down to the performance of the battery, which accounts for about half the cost of an EV. This is where it gets interesting as we move toward high-performance solid-state batteries.
The solid-state battery race, which will have a huge impact on EVs, is nearing fruition.
A Finnish startup that claims to have created the first production-ready solid-state battery (SSB) for electric vehicle production. It can charge to full in five minutes, is unaffected by heat and cold, is cheaper than conventional batteries, and can be recharged 100,000 times – an unlimited lifespan.
The Chinese BYD (BYDDY) and CATL, and Japanese players such as Toyota (TM) are also announcing breakthroughs. A report published last June by Vantage Market Research forecasts the global market for solid-state batteries will grow from just over $1 billion in 2024 to $56 billion by 2035.
As the EV sector evolves, there will be winning and losing stocks. Join the Cabot Explorer as we seek to stay ahead of the game.
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