Future of Transportation ETF Harbors Some EV Bargains

The electric vehicle (EV) investing conversation still largely revolves around Tesla (NASDAQ:TSLA) and, to a lesser extent, China’s Nio (NYSE:NIO), but the reality is that the universe of EV stocks expands well beyond that pair, and this ecosystem is about much more than just vehicle manufacturers.

The IQ Cleaner Transport ETF (CLNR) is among the various exchange traded funds tapping into those themes. CLNR, which debuted last October, follows the IQ Candriam Cleaner Transport Index.

As its name implies, CLNR is a broader thematic play on the future of transportation. It’s lineup, which includes about 80 stocks, features exposure to Tesla and Nio, but it goes well beyond those names, touching multiple corners of the electric vehicle universe. As it turns out, CLNR’s depth solidifies its credibility as something of a value idea following big declines by growth stocks.

Investors “can apply the old Gold Rush maxim of focusing on the shovel and pick sellers. In this case, as electric vehicles go from being a niche product to mainstream and traditional automakers ramp up production, the opportunities among suppliers is set to grow exponentially in coming years,” wrote Morningstar analyst Lauren Solberg. “At the same time, companies that supply key auto parts to electric vehicles, such as BorgWarner BWA, Sensata Technologies ST, and Aptiv APTV, are trading below their fair value estimates.”

Sensata isn’t a member of the CLNR portfolio, but Aptiv and BorgWarner are. Perhaps adding to the allure of CLNR for patient investors is that Aptiv and BorgWarner are among the dozen electric vehicle stocks that Morningstar says are currently undervalued, indicating that investors don’t need to pay up to directly own shares of some richly valued EV makers.

“Eight of the 21 companies in the electric vehicles portion of the Morningstar Electric and Autonomous Vehicles Index are currently trading at 4- and 5-star undervalued prices, up from just three companies at the start of the year. The index overall is currently trading at an 11.6% discount from its aggregate fair value, while the broader market’s valuation is estimated to be discounted 6.8% from its aggregate fair value estimate,” added Solberg.

Due to robust intangible assets and high switching costs, Aptiv has some credibility as a wide moat stock. As Morningstar noted, the company’s contracts are typically long, sometimes up to 14 years. BorgWarner has favorable traits, too.

“BorgWarner benefits from a substantial global manufacturing presence, highly integrated and long-term customer ties, and a moderate level of pricing power from the regular commercialization of new technologies,” concluded the research firm.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.