By George Leong, B.Comm. Published : May 24, 2022
Why Contrarian Investors Should Look at ChargePoint Holdings Inc
The selling capitulation that’s been ravishing the stock market has been hard on the growth and innovative technology segments. While the masses run to the exits, I suggest looking at the contrarian opportunities that have been opening up.
There’s been extreme selling capitulation in areas such as marijuana, technology, and green energy. The electric vehicle (EV) space has been under excessive pressure after the strong buying in 2020, but I view the selling as an opportunity to add EV stocks to an investment portfolio.
The world is clearly moving toward lower carbon emissions. I expect the adoption of EVs to drive bullish tailwinds across the world, including China, Europe, and the Americas. This should benefit holders of EV stocks.
While investors could focus on shares of companies that manufacture EVs, they might want to also consider shares of EV infrastructure companies. That’s because the adoption of EVs will require vast networks of charging stations.
Take a look at ChargePoint Holdings Inc (NYSE:CHPT), a leading developer of EV charging stations in the U.S. and Europe. The company, which currently operates more than 118,000 EV charging stations in its network, has been aggressively growing its business. (Source: “Corporate Overview” ChargePoint Holdings Inc, last accessed May 20, 2022.)
Major Sell-Off of CHPT Stock Means Contrarian Opportunity
While ChargePoint Holdings Inc has tremendous long-term opportunities in the EV market, ChargePoint stock has been subject to extreme selling capitulation during the recent stock market carnage.
CHPT stock is down by a whopping 46% this year and down by 33% over the last month. Shares of ChargePoint Holdings Inc fell to a record low of $8.50 on May 12.
My view is that the selling of EV stocks like ChargePoint stock has been excessive and indiscriminate. CHPT stock traded as high as $49.48 in December 2020.
ChargePoint Holdings Inc’s chart action since its record high has been steadily lower in a firm downward channel. The below ChargePoint stock chart shows a pattern of strong rallies followed by declines. This has been consistent so far.
Chart courtesy of StockCharts.com
The initial spike in December 2020 was followed by several strong rallies in May/June and October/November 2021, which was then followed by selling of CHPT stock.
Shares of ChargePoint Holdings Inc rallied again in February/March 2022, but this was again followed by major selling, resulting in the recent record low.
Note that the pattern of rallying and selling was accompanied by strong and declining relative strength. At this point, shares of ChargePoint Holdings Inc are again near the bottom of the trading channel on oversold relative strength and bearish moving average convergence/divergence (MACD).
Based on the previous trading action, ChargePoint stock could rally from the channel low on rising relative strength.
If this plays out, CHPT stock could rally toward the 50-day moving average at $15.88 and the 200-day moving average at $18.76. A break here could drive shares of ChargePoint Holdings Inc toward the upper channel resistance just above $20.00, implying a doubling in price.
On a technical level, the ChargePoint stock chart instills minimum confidence, but for contrarian investors, my view is that the EV industry tailwinds are strong and will continue to provide opportunities for companies like ChargePoint Holdings Inc.
At this stage, given the recent selling of CHPT stock, the downside risk is likely limited and the upside potential is significant.