Thematic versus trend, whether investing or trading, has always intrigued me. They are similar but not the same. A trend can develop within a theme. A theme can emerge from a trend. My preference is to identify a theme, nibble on it, wait for a trend to emerge, then pounce. Some become obvious like cannabis and crypto from years past. Recently, Covid-19 became the focus. Unfortunately, I don't see Covid-19 as a broad reaching, long lasting theme that will develop a trend. In other words, only a scant few winners will emerge from a wide group.
A theme that I do think will continue to produce winners is electronic vehicles, clean engines. By expanding to clean engines, we can push ourselves outside of the scope of retail EV cars and trucks. Most of the chatter through the years has been around Tesla (TSLA) . We've seen a little bit of talk around secondary plays or suppliers to Tesla, but with competitors and niche players finally coming to market, this has evolved into a legitimate theme. Sure, you could argue the major carmakers all have hybrid or EV offerings, but you won't get pure plays going that road. You'll also be saddled with a lot of legacy issues.
Instead, we're being drawn into a world of Nikola Corp. (NKLA) (yes, I think it is overvalued), Workhorse (WKHS) (a name I discussed yesterday), and Net Element (NETE) , a company set to reverse merge with electric vehicle company Mullen Technologies. The latter intrigues me because some believed Mullen might come public at higher valuations. Mullen will get the majority of Net Element (85%) and that could increase to 90%, but only if Mullen generates $100 million within two years of the closing. For what it is worth, their Dragonfly K50 high-performance sports car is one of the sleekest vehicles I've ever seen. They also will get Carhub.com in this deal, which could wind up being comparable to something like Cargurus. Even at 10% of the new company, I think NETE has doubling potential from these levels.
Hyliion, the soon-to-be public entity via special purpose acquisition firm Tortoise Acquisition Corp. (SHLL) , announced on Thursday morning a pre-order of up to 1000 truck from Agility along with an agreement from Agility they would invest in the combined company (Hyliion and Tortoise). The pre-order will create optimism, but the investment is what caught my attention. I see that as a strong sign this deal will close on time. The projected market cap at $10 was around $1.5 billion, so with prices today we're pushing closer to $2.5 billion, but the company will come out of the merger closing with roughly $1 billion in cash. The immediately upside may only exist in its squeeze potential and momentum, but this fits the longer-term theme well. And from a cash position, Hyliion will have plenty to expand rapidly.
In the end, I don't see this theme as a fad. I never saw cannabis as a fad, but it become over saturated and a commodity product became overvalued. The EV market is nowhere near saturation yet. I believe we'll have some additional expansion (offerings) before we finally begin to see takeovers. This is another area not to confuse takeovers versus consolidation. On the takeover side, we'll see bigger players in ancillary sectors or outside players acquire a company in the space rather than pure players acquiring other pure players.
As the overall market trend is becoming choppy, find a theme you have comfort in owning and preferably one the market has interest in trending higher.
