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A change in D.C. is the perfect time to make sure your investing and trading posture is lined up with trends the government really drives with the federal budget and new policy.
Or, if you want to put it another way, when $4.8 trillion starts talking, it pays... a lot... to listen.
Earlier this week, President Biden committed to taking the entire federal fleet "green" with electric vehicles, or EVs - American-made EVs, to be precise.
Big slices of the private sector have been making similar moves for a year or two now, moving to EVs or "clean-ish" natural gas power, so really, this is Uncle Sam playing catch-up. In the long run, it is cheaper and they do reduce harmful emissions, and it jives with the Biden administration's stated "Made in America" policy, too.
Turns out, it takes a lot of vehicles for the government to do its thing. Now, just to be clear, I'm talking about the cars and trucks you sometimes see out and about with tags that read "U.S. Government" - I'm not counting hundreds of thousands of military vehicles like tanks or Humvees.
At last count, the federal vehicle fleet was thought to be around 645,000, and in some cases, the government's going to have to move pretty quickly to replace them.
Take the U.S. Post Office, for instance. We all recognize the Northrop Grumman Corp. (NYSE: NOC)-made "Long Life Vehicles," or LLVs that mail carriers work their routes in. Well, the LLV design isn't living up to its name, because it's getting on 30 years old at this point; they're said to be breaking down and catching fire on the regular.
In other words, the spend is going to have to come quickly, and it is going to have to be big.
There are two big-money trends at work here - electric and self-driving vehicles (SDVs). There are two companies "in play" in this story, one of which I think is a juicy takeover target. When the trigger gets pulled, takeover targets typically experience fast, intense bull runs.
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The Future of the U.S. Auto Industry Starts... Now
Just a couple of days ago, even before President Biden publicly committed to buying hundreds of thousands of American-made EVs, Microsoft Corp. (NASDAQ: MSFT), General Motors Co. (NYSE: GM), and privately held Cruise LLC announced a partnership dedicated to developing electric, self-driving vehicles.
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Microsoft is the "brains" of the operations; it's providing the technology, including its powerful, profitable Azure cloud computing platform and an "undisclosed equity investment." General Motors is the "muscle," bringing over a century of American auto-building know-how and virtually unlimited capacity to the table. Cruise? It's a little bit of both; it's small, but it's one of the country's top self-driving vehicle developers.
The partnership could be a massive catalyst for autonomous vehicles - a breakthrough that's definitely very real, but where true, meaningful scale always seems to be "right around the corner" or "12 or 18 months away."
But scale is coming. According to a report from Allied Market Research, the global autonomous vehicle industry is expected to grow from its $54 billion valuation in 2019 to more than $556 billion by 2026.
That kind of growth potential is enough to make any investor salivate; I know I am.
Trouble is, picking the right investment in an industry that's been slow to develop and marred by several high-profile accidents and setbacks will be tricky. The sheer number of automakers and tech firms looking to crack this egg doesn't help, either.
That right there tells you that Microsoft-GM-Cruise won't be the last high-profile partnership. In fact, I think we'll see out-and-out acquisitions start to happen.
After all, if you can't make a breakthrough happen yourself, you might as well go out and buy one.
Here's the Safe Speculative Play on EV and SDV Growth
As we've talked about a few times before, Apple Inc. (NASDAQ: AAPL) is dead serious about breaking into the automotive industry to develop its own electric, autonomous vehicle.
Let's face it: It'd be insane for Apple to try and build an auto operation from what would be the ground up - $205 billion-plus cash and equivalents pile or not.
No, Tim Cook is going to do the sensible thing and go out and spend some of that dough on an automaker.
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Apple will just up and buy one.
I think Ford Motor Co. (NYSE: F) - yes, Ford - is the company that fits the bill. Ford is the most tempting, logical takeover target out there.
It's been more than 20 years since Ford hit its all-time high; the stock has more or less traded flat for five years. Right now, it's not selling anything other than trucks or Mustangs in North America, but its operations are still huge; it built something like 5.5 million vehicles in 2019.
If I were Tim Cook, I'd be looking at two things right now...
- Ford's $42 billion market cap.
- Projections that EV/SDVs will be a $554 billion industry by the middle of the decade.
I'd be thinking, "Hey... coughing up $42 billion and a 20% acquisition premium would still be a hell of a deal for what's almost a turnkey EV/SDV operation."
I'm not saying an Apple takeover of Ford is definitely going to happen, but the logic holds up - so does the math.
Now, owning Apple makes good sense anyway, but the real profit play here would be Ford. What I'd suggest is setting aside a chunk of speculative capital - 1%, 2%, maybe 3%, whatever you feel comfortable with - to build a small position in Ford. If I'm right, you're looking at an easy 50% or better profit in the next two or three years. If I'm wrong, hey - you own a classic U.S. carmaker that throws off a 5.5% yield and is fairly well positioned for a turnaround. Win-win.
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About the Author
Andrew Keene is a globally known trader and a renowned expert on all things options.