U.S. stocks have started November on a positive note, with the S&P 500 Index ($SPX) and Nasdaq Composite ($NASX) on pace for their best week of the year after having fallen in the preceding three months. However, despite this week's sharp gains, some quality names are still available at reasonable valuations. I believe Rivian (RIVN) and SoFi (SOFI) are two stocks that trade below $20, and are good buys at these prices.
What Makes RIVN Stock an Attractive Buy?
To begin with, the electric vehicle (EV) industry is going through turmoil, to say the least. The rising competition, slower-than-expected demand (which is leading to inventory pileup), and the brutal price war initiated by market leader Tesla (TSLA) have all taken a toll on EV stocks.
Even Tesla has not escaped unscathed from the turmoil, and its stock has retreated sharply from its 2023 highs as markets grow apprehensive about falling margins, with operating profits dipping below 8% in Q3.
While the EV industry churn might continue, and we could see some consolidation and bankruptcies in the space over the next couple of years, here’s why I believe RIVN stock looks like a good buy below $20.
1. Rivian has a strong product proposition: Rivian has a powerful product proposition, and its R1T pickup won MotorTrend's prestigious Truck of the Year 2022 award - plus, the company’s models have received good reviews from customers, as well. With a flurry of new EV models hitting the market, offering a good product proposition is of utmost importance, and this is what makes players like Rivian stand out.
2. Rivian’s execution has been better than peers: While almost all of the startup EV companies have faltered in execution, Rivian has fared much better than most of its peers. It has maintained its 2023 guidance of 52,000 vehicles, and the progress on its upcoming plant in Georgia - as well as the low-cost R2 platform - also looks on track.
3. A strong balance sheet and backing from Amazon: Rivian has a strong balance sheet, and held over $10 billion in cash and cash equivalents at the end of June. The importance of a strong balance sheet can’t be overstated in the current environment, where many startup EV companies are struggling to raise cash. The massive order for 100,000 electric delivery vans that Amazon (AMZN) - which is Rivian's biggest shareholder - has placed with the company should also boost its sales.
4. Reasonable valuations: Rivian’s valuations look reasonable, given the stock trades at a next 12-month enterprise value-to-sales multiple of 1.76x. The corresponding multiples for Tesla, Lucid Motors (LCID), and Xpeng Motors (XPEV) are 6.07x, 6.32x, and 2.1x, respectively.
While a lot of EV startups tout their prospects as the “next Tesla”, I believe Rivian is among the names that have a reasonably good shot at competing with Tesla. With RIVN trading below $20, I find it an attractive buy for long-term investors.
SoFi Is a Cheap Fintech Name to Buy
SoFi is another good stock worth buying, and the stock currently trades below $10 – which was the debut price for the special purpose acquisition company (SPAC) that it merged with. While the stock has come off its 2023 highs, it is still up 77% for the year, and I believe there’s more upside ahead for the fintech stock. Here’s why.
SoFi’s Revenues Are Still Growing at a Healthy Pace
While many growth names have registered a steep fall in their topline growth, and some are even experiencing contraction, SoFi’s growth story has remained pretty much intact. In Q3, revenues rose 27% YoY to $530.7 million, well ahead of the $512 million that analysts expected. Management also raised its 2023 revenue guidance, and now expects to post revenues between $2.045 billion-$2.065 billion in the year.
In Q3, SoFi added around 717,000 new members – a new record that took its total members to nearly 7 million. To put that in perspective, the company had just over 1 million members at the end of Q1 2020.
SoFi has been eating away market share from incumbents, which has helped it grow at a fast pace. The resumption of student loan repayments is another positive for SoFi, and it expects that business to grow steadily over the next few quarters.
SoFi Expects To Turn GAAP Profitable in Q4
During their Q3 earnings call, SoFi reiterated that it expects to turn GAAP profitable in Q4, and then continue to post sustainable net profits thereafter. The company’s banking license has cleared a path toward profitability, as it has helped SoFi secure low-cost deposits. In Q3, it added a record $2.9 billion in deposits, bringing total deposits to $15.7 billion - covering 65% of its loans.
SoFi’s Valuations Look Attractive
SoFi trades at a next-12 months price-to-earnings multiple of 3.17x, which looks quite attractive considering its strong double-digit growth and the expected GAAP profitability.
To be sure, SoFi does face some risks, including interest rates that threaten to stay “higher for longer”, and fears of an economic slowdown that could lead to higher delinquencies. That said, I believe the risk-reward for SoFi looks favorable at these prices.
Incidentally, earlier this week, Morgan Stanley also upgraded SoFi stock from underweight to equal weight, citing a balanced risk-reward. Overall, I believe that SoFi looks like a good way to play the fintech industry, and it is among the best cheap stocks to buy now below $20.
On the date of publication, Mohit Oberoi had a position in: RIVN , SOFI , XPEV , AMZN . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
