Forget pre-split Tesla: These 3 supplies are better buys

Little wonder Tesla (NASDAQ: TSLA) is planning a five-for-one stock split: its stock has skyrocketed more than 270% since the beginning of the year! With the split difficult, many investors are thinking of piling up expensive shares of the company in hopes that a lower price to share share will encourage more investment.

However, Tesla’s shares are currently trading at 97 times operating cash flow and 12.2 times selling, which means it looks astronomically too high. With that in mind, we asked three of our Motley Fool employees what stocks in the auto industry they recommend instead. They came back with Dana Incorporated (NYSE: DAN), Clean energy fuels (NASDAQ: CLNE), en 3M (NYSE: MMM). Here’s why.

Image Source: Getty Images.

An experienced supplier of auto parts to count on

Scott Levine (Dana Incorporated): Given how expensive Tesla is right now, investors with an appetite for a share in an electric car (EV) – in addition to a bargain – would be better suited to look elsewhere. Fortunately, they do not have to search long. Dana Incorporated is a worthy consideration – and one that has a connection to Tesla. In 2018, Diarmuid B. O’Connell, who had served as Tesla’s Vice President for Business Development for 11 years, joined Dana’s board.

For more than 115 years, Dana has been providing propulsion solutions to the automotive industry, but it has hardly declined in the past. Since 2017, Dana has closed on eight acquisitions, strengthening its position as a supplier to the EV market. Two months ago, for example, Dana acquired Rational Motion, which specializes in the integration of battery-electric cars for trucks and buses. And the gains seem to be bearing fruit. In addition to other components, Dana Hyliion, which plans to go public in 2020 through a merger with Tortoise acquisition (NYSE: SHLL), with auxiliary type engines received from its January 2019 acquisition of SME Group.

Dana’s share is currently trading at 4.5 times operating cash flow, a reduction to its five-year average multiple of 5.8, as investors are pessimistic about the company’s ability to thrive through the rest of a challenging 2020. By the first half of the year, for example, the company reported sales points of $ 3 billion – about 33% lower than what it reported in the same period in 2019. However, the company has certainly removed previous decline in its 115-year history , and I believe the company will recover. Analysts seem to agree, predicting the company to report earnings per share of $ 0.24 in 2020 and $ 1.82 in 2021. For patient investors with a desire for exposure to the EV market, Dana seems a compelling chance.

Tesla strikes to clean trucks

John Bromels (Clean energy fuels): Tesla CEO Elon Musk has set his sights on the truck industry, and hopes to start production of the all-electric Tesla Semi in 2021. Start Nikola hopes to roll out its own semi-truck with redundant fuel cells by 2023.

However, you do not have to wait that long to invest in clean fuel for freight transportation, thanks to Clean Energy Fuels. The company sells the only option for zero-emission trucks for trucks available today: renewable natural gas (RNG). While clean energy fuels also provide regular fuel for natural gas for the special trucks it can use, the hottest product at the moment is Redeem, an RNG diesel replacement. Clean energy fuels capture methane from large emitters such as dairy cattle and landfill, then process it into cleaner-burning RNG fuel. Because the fuel burned generates less greenhouse gases than the established emissions, the whole process is often carbon negative.

Redeem has been popular with companies that have large truck fleets but are trying to lower their carbon footprint. Sender UPSordered, for example, 170 million gallon equivalents of Redeem in 2019. Clean Energy Fuels has also been successful in introducing its fuels to trucks serving the Port of Los Angeles. A recently announced RNG partnership with major oil Chevron sent Clean Energy’s share price up. But this green energy specialist still has a lot of room to run, now that the market for clean transportation fuel is finally starting to emerge.

All three of these picks trade at much lower ratings than Tesla. DAN price up to CFO per share (TTM) data by YCharts.

An unconventional auto-pick

Lee Samaha (3M): The industrial conglomerate may not sound like the most obvious stock-holding auto stock, but the sector is one of the most important swing factors in its income and earnings perspective. As such, 3M stock offers a good, and relatively safe, way to gain exposure for an improving automotive market in 2021. Show a dividend yield of 3.6% and the fact that the stock trades at 18.2 times estimated free cash flow in 2020 , and 3M is a good option for value-oriented investors.

The exposure of 3M to the automotive market is shown in the table below. The corporate groups with heavy exposure to the automotive markets accounted for 57% of the annual revenue of $ 995 million. 3M’s automakers tend to be tied to production, and the COVID-19-related shutdowns of automakers led 3M to disappoint investors in the second quarter.

Data source: 3M presentations.

That said, car production is expected to improve sharply in 2021 and 3M is likely to be a beneficiary. In addition, it is worth noting the very unusual nature of the COVID-19-inspired recession. There was no sort of graduate decline, so customers of 3M are very likely to carry an increased level of inventory (relative to what sales would be in the second quarter). As such, it can take a quarter or two before customers begin to complete the inventory, and if they do, the snapback in orders could be sharp.

Meanwhile, the management of 3M investors said it saw a broad-based improvement in sales when it started the third quarter. In addition, it also appears that prices are up sharply with their products – sales prices increased 0.5% in the second quarter, even though the company had a 12.2% decline in year-over-year sales. Eventually, management continues to put the company back on track as it tries to return to its former glory.

All told, 3M still has a lot of work ahead to convince investors that it’s back on track, but on a risk / reward basis it looks like a good value.