If You’re Bullish on EVs, Rio Tinto (RIO) May Offer a More Sensible Solution

At this point, the mantra has become a meme: electric vehicles are the future of transportation. Indeed, to suggest otherwise sounds like heresy. Therefore, retail investors – guided by myriad Wall Street experts – pile into shares of EV king Tesla (TSLA). While TSLA may certainly rise higher from here, market participants should also look into infrastructural plays like Rio Tinto (RIO). Though RIO stock lacks the excitement of Tesla, it’s the more credible investment.

By saying this, plenty of emotions rise to the forefront, most of them perhaps of the angry variety. However, it’s important to realize one basic possible outcome for any presently dominating enterprise. No matter how strong a business appears today, it can always fail – and sometimes for reasons outside of the underlying firm’s control. An investor only needs to look back in history to recognize the danger.

As you know, the origins of the U.S. auto industry represented a rich and colorful canvas. However, over the past decades, individual auto brands consolidated into a handful of major players. Fascinatingly, a Wikipedia entry details a list of defunct automobile manufacturers in this country. And while I’m careful to avoid using Wikipedia as a go-to source, in this case, an exception can be made: no other platform I’m aware of keeps such a comprehensive list.

Significantly, the main takeaway centers on the sheer volume of entries that people no longer talk about today. Ironically, several EV companies – such as American Electric Vehicle Co. and Buffalo Electric – make up the ranks of failed yesteryear mobility specialists. By my count, we’re talking about thousands of businesses that just couldn’t keep their wheels turning.

At the present juncture, as company after company introduce their distinct take on electric transportation, it’s worth reminding ourselves that probably most of these enterprises will fail. Even almighty Tesla isn’t guaranteed to stay as the top dog indefinitely. However, critical commodity firms will almost surely command long-term relevance, which is where RIO stock comes in.

RIO Stock Fills Demand, Not Consumer Whims

To be 100% clear, Tesla – which is down almost 37% in the trailing year – could work its way out of its present funk. If so, acquiring TSLA now may be a prudent investment. However, if you’re going to buy and hold for, say, the next 10 years, RIO stock may allow you to sleep easier at night.

Fundamentally, Tesla caters to consumer tastes – and taste can always change. Granted, Tesla not only dominates the EV ecosystem right now but it earned its status as king of the jungle. Nevertheless, the company remains vulnerable to competition. For instance, while EVs benefit from having fewer parts, this dynamic also means more competitors can enter the space.

Moreover, the greatest rivalry may stem from the legacy automakers and their longstanding brand awareness. Though a subjective criticism, Teslas aren’t particularly compelling from a visual standpoint – once you’ve seen one, you’ve basically seen them all (the displeasing aesthetics of the Cybertruck aside). As more legacy firms enter the fray, the excitement they inherently carry will probably steal market share from Tesla.

However, what won’t be replaced is the need for critical commodities such as lithium and copper – specialties under Rio Tinto’s corporate umbrella. Notably, even advanced battery research still involves the incorporation of lithium. In other words, it’s impossible to determine which EV brand will dominate the market 10 years from now. Nevertheless, what all EVs should have in common is their dependency on lithium.

In fairness, RIO stock represents quite literally a commoditized play. So, it’s not distinct from any other lithium miner. That said, Rio Tinto commands substantial advantages. On an operational level, the company carries a three-year revenue growth rate of 11.7% and a net margin of 22.31%, both stats ranked among the top half of the metals and mining industry.

From a valuation standpoint, an analysis of the company’s discounted cash flow (DCF) reveals that the fair value of RIO stock stands at $95.15. In contrast, shares closed at $64.73 following the conclusion of the March 16 session. Theoretically, then, RIO has more upside in the tank.

Confirming Indicators Support Rio Tinto

Finally, investors can take comfort in knowing that other indicators support the bullish angle for RIO stock. According to the Barchart Technical Opinion rating indicator, RIO is a weak buy based on current trends. Against a longer-term framework, RIO’s 60-month beta sits at 0.68, indicating far lower volatility than the benchmark equities index.

For full disclosure, Wall Street analysts currently peg RIO stock as a consensus hold. This breaks down as four strong buys, five holds and two strong sells. Nevertheless, some improvements have been made compared to analysts’ outlook from three months ago.

Moreover, among recent analysts’ coverage, RIO stock ranks as a consensus strong buy. Further, the latest experts’ average price target stands at $85.70, implying over 32% upside potential.

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