Pundits and analysts are starting to realize the great potential of vehicles powered by fuel cells and the huge profits that modern, connected vehicles can generate. Meanwhile, in recent weeks, the sentiment toward Nikola (NASDAQ:NKLA) on the Street appears markedly improved. Given all of these points, along with my upbeat view of Nikola’s technology and the demand for fuel-cell trucks, I remain upbeat on the longer-term outlook of NKLA stock.
But I continue to recommend that investors wait until after “restrictions on the sale of over 250 million shares of Nikola’s stock …expire on Dec. 3″ expire before buying the shares. After the “lockup expiration day,” I believe that investors will likely be able to buy the shares well below their current price.
Sentiment Toward Fuel Cells Is Improving
Pundits, analysts, and the Street in general are starting to more fully internalize the tremendous potential of fuel-cell trucks. Due to the combined impact of regulatory requirements, companies’ desire to be seen as “green,” and the limitations of battery-electric vehicles, I’ve long been upbeat on fuel-cell trucks.
Last month, TheStreet’s Jim Cramer praised hydrogen vehicles, saying “over the next 10 to 20 years, I expect hydrogen to take major market share in transportation.” And earlier in November, the pundit/analyst went further, criticizing Tesla (NASDAQ:TSLA) CEO Elon Musk for ignoring hydrogen.
Meanwhile, after Nikola reported its third-quarter results on Nov. 9, multiple Wall Street analysts remained upbeat on its shares. For example, JPMorgan’s Paul Coster kept a $40 price target and an “overweight” rating on the name. Also upbeat was Cowen’s Jeffrey Osborne. He trimmed his price target on the shares to $47 from $49 but kept his “outperform” rating on Nikola intact.
These analysts are likely not only bullish on Nikola’s fuel cell initiative, but also agree with my previous optimistic take on the company’s technology. I believe that the company’s partnership with General Motors (NYSE:GM) will move forward.
On the latter point, GM failed to disclose a termination of the deal during its own Q3 earnings conference call, and a since-deleted post indicated that the deal was concluded. These points indicate that the agreement will eventually be finalized, in-line with my previous prediction.
The Monetization of Connected Cars
On Nov. 18, Morgan Stanley analyst Adam Jonas wrote that “”Tesla is on the verge of a profound model shift from selling cars to generating high margin, recurring software and services revenue.” He explained that the automaker can make money from selling subscriptions to services like autonomous driving systems, “infotainment and performance upgrades.”
I believe that Jonas’ thesis is correct. In fact, I had a similar hypothesis in an article I wrote about BlackBerry (NYSE:BB) in January 2018.
And just as I think that BlackBerry and Tesla can generate significant revenue and profits from selling extra services to drivers, I believe that Nikola will eventually be able to do so as well.
As I noted, restrictions on the sale of more than 25 million shares of NKLA stock expire Dec. 3. Since, according to Yahoo Finance, there are 156.5 million shares available, more than 25 million shares is nearly one-sixth of the total float. That is a significant amount.
The Bottom Line on NKLA Stock
Driven by high demand for hydrogen trucks, its strong technology, the sale of services, and its likely partnership with GM, Nikola has a bright future.
Still, the lockup expiration is likely to put meaningful downward pressure on NKLA stock. As a result, I continue to advise longer-term investors to buy the shares on the downturn that is likely to occur after Dec. 3.
On the date of publication, Larry Ramer held a long position in BlackBerry.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been Roku, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.