At first glance, automotive giant Stellantis (STLA) – which owns powerhouse brands such as Chrysler, Fiat and Dodge, among many others – appears to be fighting a cruel battle against inevitability. After all, the experts have long pounded the table that electric vehicles are the future. Well, that narrative isn’t quite panning out, possibly boding well for speculators of STLA stock.
To be sure, it hasn’t been a kind week for Stellantis, with shares down more than 4%. Still, as Barchart contributor Tony Daltorio mentioned earlier this month, you can’t discount the legacy automakers, which have enjoyed a strong performance this year. For STLA stock, it’s almost roughly 13% despite last Friday’s 4% drop.
In contrast, pure-play EV manufacturers are struggling. Sector king Tesla (TSLA) is down more than 31% since the beginning of the year. Upstart rival Rivian Automotive (RIVN) fell almost 57% during the same period. A major headwind that the pure-play enterprises suffer from is a lack of alternatives. It’s really all or nothing for these businesses.
On the other hand, the legacy automakers – while they may offer “dirty” transportation solutions, so to speak – have the option of turning to their tried-and-true medium of internal-combustion engines. Further, hybrid vehicles – which basically combine the best of both worlds – are flying out dealership doors, offering another avenue for the legacy players that EV companies just can’t match.
Therefore, it’s not entirely unreasonable to bet on STLA stock during this market weakness. And it appears that options traders have caught wind of this opportunity.
STLA Stock Ranks High in Unusual Stock Options Volume Indicator
When the closing bell rang out for the April 12 session, STLA stock ranked within the top 10 in terms of Barchart’s unusual stock options volume indicator. This useful tool captures the most aberrant trades in the derivatives market, clueing retail investors in on what the smart money may be doing.
For STLA stock, total volume reached 55,779 contracts against an open interest reading of 233,089 contracts. Further, the difference between Friday’s volume spike and the trailing-month average volume came out to 563.64%. Breaking this down, call volume hit 53,632 contracts while put volume reached 2,147.
On paper, the aforementioned pairing yielded a put/call volume ratio of 0.04X. That suggests extreme bullishness as more traders are engaging call options than puts. Interestingly, a look at Barchart’s options flow screener – which filters exclusively for big-block transactions – reveals that a large chunk of the unusual derivative movements featured bullish sentiment.
That’s important to note because big block transactions can influence overall market sentiment, whereas the positions that individual retail investors may take won’t move the needle. So, long story short, investors can more reasonably trust the face-value implications of the ultra-low put/call ratio.
On the technical front, the Barchart Opinion indicator rates STLA stock as a 56% overall buy. On the surface, that’s not the most confident reading although the indicator took a hit due to the recent volatility in Stellantis shares.
To be fair, there is a heightened threat of downside risk in the near term. Looking at both the chart and STLA’s Trader’s Cheat Sheet, traders will be hoping for the $24 level to be the line in the sand. However, there is a case to be made that support can arrive at $25.72, which Barchart identifies as a “Pivot Point 1st Support Point.”
Fundamentally, because EVs lack production alternatives, this circumstance potentially gives Stellantis an extended viability pathway. Therefore, from a speculative standpoint, STLA stock looks attractive.
Great Value Can’t Be Ignored
Finally, another factor to consider with STLA stock is the value proposition. Currently, shares trade hands at 0.41X last year’s revenue. However, the auto manufacturing industry runs an average sales multiple of 1.29X. Of course, you don’t want to merely buy a security just because it appears discounted mathematically. Sometimes (many times actually), there’s a reason for the discount – usually not a good one.
However, in my opinion, it appears that Wall Street is overstating how quickly EVs will become the mobility standard and how quickly combustion engines will go away. Keep in mind too that the 2024 election is far from a foregone conclusion. If the Democrats lose power, a lot of the pro-EV mandates could be reversed, giving entities like STLA stock a chance.
Of course, no one can guarantee anything. However, it’s time to rethink this dinosaur industry. Keep your eye on STLA stock as it could get very interesting over the next few months.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
