President-Elect Joe Biden will start off his tenure, like every incoming President, on a platform of promises. In this case, he has pledged his Administration to promote robust policies in both the green economy and social justice realms. Of immediate importance to investors, Biden has committed his Administration to rejoin the Paris climate agreement, to sign a COVID relief bill including $2,000 direct payment checks to US residents, and to raise the minimum wage – and this is only the tip of the iceberg.
Collectively, this policy area, where it intersects investing, is called ESG, for Environment-Social-Governance. ESG can refer to a wide range of stocks, as most companies in the category will focus on just one piece, or combine various pieces. One thing is certain – the Biden Administration will be a boon for ESG-related companies. Increased government spending, with a strong focus on environmental and social causes – and increased governmental spending means that someone will be winning those contracts.
With this in mind, we’ve opened up the TipRanks database and pulled the details on two ESG stocks that some of Wall Street’s top analysts are giving Buy ratings – and predicting double-digit gains.
GreenPower Motor (GP)
Say ‘electric vehicles,’ and most people will automatically think of the hybrids that have been on the road for several years now, or of Elon Musk’s famous Tesla. But EVs for the individual market, however quickly they are growing in popularity, will only address a small part of the auto sector’s emissions issue. Commercial vehicles – whether transferring goods or people – are a much larger part, and so make, long-term, a more important target for environmental policy to address carbon pollution.
Vancouver-based GreenPower builds EVs for the commercial market, specializing in busses for school district and urban transit system use. The company also has cargo van models, and its flagship product, the EV Star, is a 25-foot all-electric minibus designed for transit, shuttle, and vanpool operations. GreenPower’s customers include the University of California system, the Port of Oakland, and Sacramento Regional Transit.
The switch from combustion engine to all-electric is in its infancy, and companies like GreenPower, while they can deliver a quality vehicle, still have to deal with two major issues: scaling and charging infrastructure. On scaling, they will need to expand the manufacturing facilities. GreenPower currently has a 150,000 square foot factory in Porterville, California- but it was only able to deliver 17 vehicles in the last quarter. On the matter of infrastructure, GP’s customers, at the current time, will also need to purchase the charging installations necessary to keep their vehicles running – and to maintain them. These are the main chokepoints in the rollout of EV fleets.
On a positive note, while GreenPower’s deliveries were low for the quarter ending in December, orders and production were increasing. The company reported 95 vehicles either in production or completed but not delivered in Q4, a total that includes a doubling of school bus production. The company describes production as ‘ramping up considerably.’
With this in the background, Maxim analyst Tate Sullivan, rated 5-stars by TipRanks, sees GreenPower holding a strong position in the commercial EV market.
“After factoring in a $10M quarterly revenue contribution from the higher electric school bus production and delivery cadence into our forecasts, we increase our FY22 revenue to $47M, from $46M and FY23 to $82M, from $74M, representing a total increase over the two fiscal years of about $9M… We continue to forecast GP will increase inventory ahead of more vehicle deliveries and revenue growth,” Sullivan opined.
To this end, Sullivan gives GP shares a $40 price target, suggesting ~43% one-year upside and backing his Buy rating. (To watch Sullivan’s track record, click here)
Overall, Wall Street is broadly optimistic here, as shown by the Strong Buy consensus rating. Shares are priced at $28 and their $37.62 average price target implies a 34% upside in the year ahead. (See GreenPower’s stock analysis on TipRanks)
BorgWarner, Inc. (BWA)
Where GreenPower is a newcomer, focusing from its start on the electric vehicle market, BorgWarner is a major player in the Detroit auto scene, where it has long been an important manufacturer of automotive transmissions and powertrains. BorgWarner is a fine example of old-school industrial muscle – adapting to new conditions. BorgWarner has developed a line of powertrain products for EVs, ranging from electric drive motor to EV transmissions to power electronics and controllers.
The line of EV products is part of a company commitment to environmental sustainability. In addition to drivetrain systems for pure EVs, BorgWarner also produces parts and equipment for combustion-electric hybrid vehicles. The company is working to improve the fuel efficiency – and hence, reduce the emissions profile – of its lineup of traditional transmissions and powertrains.
In a move that bolsters BorgWarner’s EV capabilities, the Auburn Hills-based company announced in October that it had completed its acquisition of Delphi, a competitor in the Detroit automotive power and power electronic niche. The acquisition deal was worth an estimated $3.3 billion.
As the economy reopens, manufacturers like BorgWarner are seeing a rebound from the corona recession of 1H20. The company’s Q3 revenue print, at $2.53 billion, was the best of 2020 and was comparable to the $2.49 billion in 3Q19. Earnings beat estimates, at 88 cents per share, and showed a complete turnaround from the net loss reported in Q2.
5-star analyst Noah Kaye, of Oppenheimer, sees the Delphi acquisition and the move to the EV market as net-gains for BorgWarner
“…upbeat customer conversations post-Delphi acquisition appear to support BWA’s move to increase its power electronics capabilities via the merger. Management reaffirmed its view of $1B potential revenue synergies by 2025 while voicing confidence in synergies timetable and value capture opportunities. While the company continues to navigate supply chain dynamics as markets recovery, demand fundamentals provide a healthy jumping-off point for FY21 and capital allocation flexibility is increasing post-merger,” Kaye commented.
Kaye rates BWA shares an Outperform (i.e. Buy), and his $53 price target indicates confidence in a one-year upside of ~32%. (To watch Kaye’s track record, click here)
BorgWarner is proof that Detroit’s auto sector is alive and kicking. The stock gets a Moderate Buy rating from the Wall Street analyst consensus. That rating is based on 12 reviews, including 6 Buys, 5 Holds, and a single Sell. Shares are trading for $39.93 and have an average price target of $45, yielding an upside of ~13% for the next 12 months. (See BorgWarner’s stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.