The inventory market, crypto market, actual property market — even Pokémon playing cards are hovering round all-time highs. In the meantime, the actual financial system is dealing with 30-year-high inflation charges, ongoing provide chain challenges, and a lifestyle that continues to be very a lot impacted by COVID-19.
There are completely different viewpoints on the disparity. However when buyers see corporations like Lucid Group (NASDAQ: LCID) and Rivian Automotive (NASDAQ: RIVN) valued at a mixed $200 billion — it raises some purple flags. Here is why Lucid and Rivian may sign a market high, how one can strategy these two corporations, and what to do for those who’re apprehensive a few downturn.
Picture supply: Lucid Group.
Signs of an unhealthy market
If there ever have been an indication of a market high, then seeing Rivian blast to a market cap of over $150 billion at its peak might be it. Older buyers might painfully keep in mind the dot.com bubble of 2000 to 2002 the place tech corporations with little to no gross sales fetched valuations within the billions for little greater than a marketing strategy. Rivian is not even delivering its automobiles but, but it surely’s already the second-most beneficial U.S. automaker behind Tesla (NASDAQ: TSLA).
By comparability, Lucid is valued at round $100 billion. It is a bit extra comprehensible contemplating the corporate is producing and delivering vehicles and has the six highest vary scores of any EVs rated by the environmental safety company (EPA). It additionally gives variations of its Lucid Air luxurious sedan that sport over 1,000 horsepower. Lucid additionally has some extremely spectacular know-how that may go toe-to-toe with Tesla. Nonetheless, even Lucid is wanting increasingly more costly as its inventory worth strays from fundamentals.
Did the bubble burst?
The euphoria seemingly peaked, not less than for now, on Nov. 16 when Rivian reached an intraday excessive of $179.47 per share. The inventory is now down round 30% from that prime as buyers take income.
Knowledge by YCharts.
In the meantime, Lucid was down round 30% from its all-time intraday excessive of $64.86 per share earlier than Friday’s 17% achieve. Buyers searching for high-risk, high-reward choices within the EV sector may contemplate Lucid over Rivian, or purchase different main EV names like Ford or Nio which have decrease valuations regardless of being extra established.
Nobody is aware of the place Rivian or Lucid is headed within the brief time period. However we do know that sky-high valuations, even for corporations with numerous potentials, are trigger for concern.
What to do now
Even for those who suppose the Rivian and Lucid bubble signaled a market high, you are still in all probability higher off staying invested within the U.S. inventory market (which has confirmed to be the most effective methods to generate wealth over time). An excellent pivot might be to transition towards shares that do not offer you a meme inventory migraine. Foundational corporations like Microsoft or Amazon supply numerous development with out almost as a lot volatility.
Within the electrical automobile sector particularly, constructing a basket of a number of shares is a good way to incorporate high-growth names like Lucid and Rivian with out betting the farm on them in case they fail.
Follow investing fundamentals
Finally, the easiest way to strategy a market high is by investing in corporations you perceive, are occupied with, and can follow via thick and skinny. Investing in development shares like Lucid to make a fast buck might be a nasty concept. However for those who imagine within the firm and need to let the funding thesis play out (and are keen to abdomen the volatility), then it might be a superb transfer.
Nonetheless, for many buyers, selecting corporations which are business leaders on a gradual and regular development trajectory might be the very best wager.
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John Mackey, CEO of Entire Meals Market, an Amazon subsidiary, is a member of The Motley Idiot’s board of administrators. Teresa Kersten, an worker of LinkedIn, a Microsoft subsidiary, is a member of The Motley Idiot’s board of administrators. Daniel Foelber owns shares of Lucid Group, Inc. and has the next choices: brief December 2021 $20 calls on Lucid Group, Inc., brief February 2022 $20 calls on Lucid Group, Inc., and brief November 2021 $22 calls on Lucid Group, Inc. The Motley Idiot owns shares of and recommends Amazon, Microsoft, NIO Inc., and Tesla. The Motley Idiot recommends the next choices: lengthy January 2022 $1,920 calls on Amazon and brief January 2022 $1,940 calls on Amazon. The Motley Idiot has a disclosure coverage.
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