What can you buy with $500? Well, maybe you’ve been secretly craving a new watch, an awesome-looking drone, or maybe a fancy espresso maker.
But if you’d rather invest than spend, a few stock picks might be just what you need. So let’s look at which industrial stocks I would invest in if I had $500.
Image source: Getty Images.
Tesla
When it comes to the automotive industry, there is Tesla (TSLA -5.03%), and there is everyone else. With a market cap of over $600 billion, Tesla not only dwarfs its closest competitors — it’s bigger than most of them combined.
And for a good reason. Demand for electric vehicles (EV) continues to outstrip supply. And as Tesla continues to ramp up production, the company should capture an even bigger share of the global vehicle market.
In the past calendar year, production increased to 1.31 million vehicles. That’s a 40% increase from last year, when manufacturing facilities in California and China ramped up and factories in Texas and Germany came online.
In addition, as the company’s production increases, the prices for its vehicles fall. Tesla announced price cuts of up to 20% last month. That should help the company capture larger market share and further squeeze competitors who often struggle to make and sell electric vehicles at a profit.
Incidentally, the federal government also gave Tesla customers a rebate when the Treasury revised definitions of which vehicles qualify for tax credits under the 2022 Inflation Reduction Act.
Granted, lower prices will lead to shrinking margins — but Tesla still has the best margins in the industry. That’s partly because it’s missing many of the hefty cost overhangs that plague traditional automakers. Its direct-to-consumer model eliminates merchants and all the complexities and inefficiencies that come with them.
For all these reasons and more, Tesla still seems like the best name in the industrial space. If I had $500 to spend, I would invest it in Tesla first.
Image source: Getty Images.
Generac Holdings
The second stock I would target with my $500 would be Generac Holdings (GNRC -1.07%). If Tesla is the stock in the industrials sector that you can’t help but notice, Generac is its under-the-radar companion.
Like Tesla, Generac’s stock price has been on a roller coaster ride over the past five years. Shares rose an astronomical 906% between Jan 2018 and Oct 2021. Then they fell – a lot. On the low end, Generac shares were 82% off their all-time high.
GNRC data from YCharts
Generac’s profile and fundamentals are extremely stable compared to its wild stock price action. The company manufactures residential, commercial and industrial generators. In addition, Generac plans to expand its clean energy offering.
This seems to be a successful strategy. With so many electric vehicles coming online — and the U.S. power grid is already emphasizing it — there should be opportunities for Generac to jump in with renewable energy solutions.
The real question is whether consumer demand will be there. The company has lowered its revenue guidance due to weaker demand, partly due to the slowing housing market. However, Generac could get a revenue boost from federal infrastructure spending, which is likely to kick in sometime this year.
Anyway, with an expected price-earnings multiple of 17.5, Generac’s valuation seems reasonable and attractive to me. Shares are still more than 75% off their all-time high. So investors willing to hold for the long term should have peace of mind knowing they’re not buying at the top. In fact, if I had $500 to invest in the industrial sector, Generac would be a name to keep an eye on.
Jake Lerch has positions in Tesla and has the following options: long March 2023 $130 puts on Tesla and short March 2023 $140 puts on Tesla. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
