Dan Niles says he likes this stock as a 'very cheap' way to play the electric vehicle market

Published Wed, Mar 10 20216:16 PM EST

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

Hedge fund manager Dan Niles told CNBC on Wednesday he likes shares of Magna International as an attractively priced way to get exposure to the buzzy electric vehicle market. EVs have been in the spotlight on Wall Street in recent months as a flurry of startups go public through reverse mergers with special purpose acquisition companies, and as established auto titans like General Motors and Ford ramp up their investments to compete with established players such as Tesla . "Obviously, everybody likes electric vehicle stocks so Tesla, companies that don't make any money today but are going to be huge 10 years from now, etc.," Niles, founder and senior portfolio manager for the Satori Fund, said on "Closing Bell." "For us, I'm a value investor. I like growth at a reasonable price." That's where Canadian auto supplier Magna International enters the fold for Niles. "Tesla's revenues were up, I think, like 28% last year. The stock is up 700%. That's great. I like Magna International because that's trading, I think, about 12 times P/E," Niles said, using an abbreviation for the valuation metric price-earnings ratio. Magna International has a relationship with Alphabet 's self-driving company unit Waymo, Niles noted. Last fall it reached a production agreement with EV startup Fisker , among other deals in the space . "And many years ago when Apple was pushing their car initiative, they were supposedly in discussion with them, as well, and so for me, I'd rather own [Magna]," Niles said. "We have some other names in that space," he said. "Again, very cheap. Not in the Reddit crowd or it's going to be huge in 20 years and I'm going to pay an enormous amount in a SPAC today. That's not what we want to be in." "We want to be in something with some good, fundamental value downside protection," added Niles. "That's why we like Magna International. It's a very cheap EV play, and that's why we have that one." The comments Wednesday from Niles came shortly after the Dow Jones Industrial Average rose nearly 1.5% to close at a record high. The S & P 500 gained 0.6% on Wednesday, while the tech-heavy Nasdaq Composite finished the day slightly in the red. Where tech goes from here Niles runs a tech-focused long-short fund, and the investor has taken a more bearish view on the sector this year as the economy reopens from the Covid pandemic and Treasury yields move higher. In a Barron's piece published earlier this month, Niles said shorting tech stocks that soared in 2020 has partly helped his fund get off to its best start to a year since its founding in 2004. On Wednesday, Niles told CNBC he thinks the broader market could continue moving higher in the near-term as the recently passed coronavirus stimulus bill makes its way into the economy and provides a jolt. "But then my feeling is, 'That's it. You're done,'" Niles said. "As the economies open up, the 10-year continues to climb. I think it'll finish the year well over 2%. I think tech stocks will continue to struggle, especially the ones with high multiples and revenues that are all on the come," said Niles. "For us, that's where we have our shorts concentrated." While Niles said his fund has shifted around some of its positions recently, he stressed, "We still don't like tech because of the valuations there." He added, "We like the cheaper forms of tech or other sectors like banks, energy, raw materials, things that benefit from inflation and economies opening up, which people hated last year." Oracle still a favorite One of those tech companies Niles considers to still be attractive is Oracle . Shares of the enterprise software maker are up over 11% so far this year, outperforming the S & P 500 information technology sector, which is down about 0.8% in the same time frame. In December, Niles said he considered Oracle one of his top stock picks for 2021 , and he maintained that optimistic view Wednesday even with its strong performance. "It's still my favorite tech pick, because it's defensive but it has a lot of offense with the cloud business picking up," Niles said. Oracle's forward-looking price-earnings ratio remains below that of the broader S & P 500, Niles said, while adding that he expects to see solid revenue growth from Oracle. "You look at that and say, '16 times earnings. S & P sitting at 23 times earnings. Why can't this get a market multiple? So you don't need a lot," Niles said. "I think this stock could still have another 30% to 50% upside in the next 12 months, just to get the multiple to a market multiple."

Daniel Niles

John Chiala | CNBC

Hedge fund manager Dan Niles told CNBC on Wednesday he likes shares of Magna International as an attractively priced way to get exposure to the buzzy electric vehicle market.

EVs have been in the spotlight on Wall Street in recent months as a flurry of startups go public through reverse mergers with special purpose acquisition companies, and as established auto titans like General Motors and Ford ramp up their investments to compete with established players such as Tesla.

"Obviously, everybody likes electric vehicle stocks so Tesla, companies that don't make any money today but are going to be huge 10 years from now, etc.," Niles, founder and senior portfolio manager for the Satori Fund, said on "Closing Bell." "For us, I'm a value investor. I like growth at a reasonable price."

That's where Canadian auto supplier Magna International enters the fold for Niles.