What can you buy with $500? Well, perhaps you’ve been secretly craving a new watch, an awesome-looking drone, or maybe a fancy espresso machine.
But if you’re more inclined to invest rather than spend, maybe some stock picks are what you’re after. So let’s take a look at what industrial stocks I’d invest in if I had $500.
When it comes to the automotive industry, there’s Tesla (TSLA -5.03%), and there’s everyone else. With a market capitalization of over $600 billion, Tesla doesn’t just dwarf its nearest competitor — it’s larger than most of them combined.
And for good reason. Electric Vehicle (EV) demand continues to outpace supply. And as Tesla continues to step up production, the company should capture an even greater share of the global vehicle market.
In the past calendar year, production rose to 1.31 million vehicles. That’s a 40% jump from a year earlier, as production facilities in California and China ramped up and factories in Texas and Germany came online.
What’s more, as the company’s production levels rise, prices for its vehicles are falling. Tesla announced price cuts of up to 20% last month. That should help the company take greater market share and further squeeze competitors, who often struggle to manufacture and sell electric vehicles at a profit.
Incidentally, the Federal government also handed Tesla customers a discount when the Treasury Department revised the definitions of which vehicles qualify for tax credits under the 2022 Inflation Reduction Act.
Granted, lower prices will result in shrinking margins — but Tesla still has the best margins in the industry. That’s partially because it lacks many hefty cost overhangs that plague traditional automakers. Its direct-to-consumer model cuts out dealerships and all the complexities and inefficiencies that come along with them.
For all those reasons and more, Tesla still looks like the best name to own in the industrial sector. If I had $500 to spend, Tesla is where I would invest it first.
The second stock I’d target with my $500 would be Generac Holdings (GNRC -1.07%). If Tesla is the you-can’t-help-but-notice-it stock in the industrial sector, Generac is its under-the-radar companion.
Like Tesla, Generac’s stock price has been on a rollercoaster ride for the last five years. Shares gained an astronomical 906% between Jan. 2018 and Oct. 2021. Then they dropped — a lot. At the bottom, Generac shares were 82% off their all-time high.
Generac’s profile and fundamentals are downright stable compared to its wild stock price action. The company makes residential, commercial, and industrial generators. In addition, Generac has a plan to expand its clean energy offerings.
This seems like a winning strategy. With so many electric vehicles coming online — and the U.S. energy grid already stressed — there should be opportunities for Generac to step in with renewable energy solutions.
The real question is whether consumer demand will be there. The company has lowered its revenue guidance on the back of weakening demand, due in part to the slowing housing market. However, Generac may get a sales boost from federal infrastructure spending that will likely kick in sometime this year.
At any rate, with a forward price-to-earnings multiple of 17.5, Generac’s valuation looks 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 feel reassured they’re not buying at the top. Indeed, if I had $500 to put to work in the industrial sector, Generac would be a name I would be eyeing.
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.