Stock Analysis & Ideas

Stellantis Stock Plunges 7% as Chip Shortage Affects Production

Story Highlights

Stellantis is getting hit hard by the chip shortage. Yet, the chip shortage is hitting everybody just as hard, sending vehicle prices soaring. This opens up a serious opportunity for Stellantis to succeed – if it can beat the chip shortage.

The latest news for Stellantis (STLA) will likely serve to fuel pessimism. The FIM CISL union revealed that the semiconductor shortage hitting so many markets is likely to do terrible things to Stellantis’ production figures. As a result, the stock is down over 7% today.

Stellantis may not be immediately familiar as car makers go, but one of its biggest products is Chrysler. Producing cars in this environment should be a good play, especially given what cars are selling for these days. However, Stellantis is getting hit hard by the chip shortage.

I’m shifting to bullish on Stellantis. The chip shortage is both an opportunity and a problem all in one. While Stellantis is taking a serious hit from this issue, if it can find a decent workaround, there’s a lot of potential upside ahead.

The last 12 months for STLA have been mostly downhill. The company hit some of its highest points close to this time last year. In August 2021, Stellantis came in at just over $20 per share. A brief slip took the company to just under $16. A second recovery let the company once again challenge $20, but a much deeper slip followed that brings us to today.

The shortage could reduce Stellantis’ production by as many as 220,000 vehicles this year alone. So far, STLA has produced 351,890 vehicles in 2022. That’s down about 14% from this time last year.

Wall Street’s Take on Stellantis

Turning to Wall Street, Stellantis has a Moderate Buy consensus rating. That’s based on 11 Buys and four Holds assigned in the past three months. The average STLA stock price target of $23.60 implies 105.2% upside potential.

Analyst price targets range from a low of $16.18 per share to a high of $35.48 per share.

Investor Sentiment is Willing to Ignore the Risks

While Stellantis’ future may not be looking all that bright, investor sentiment is certainly weighing in on Stellantis stock. It currently boasts a Smart Score of 8 out of 10 on TipRanks. That puts it at the lowest level of “outperform,” making it more likely than not to do better than the market as a whole.

One of the biggest supports for this thesis is hedge fund involvement. Hedge funds, based on the results of the TipRanks 13-F Tracker, bought another 421,900 shares in the most recent quarter. This actually marks the second straight quarter of slight increases in hedge fund purchases of Stellantis shares.

Hedge funds have maintained a relatively stable position in Stellantis, only making slight corrections in either direction since March 2021.

Meanwhile, insider trading at Stellantis is something of a blank wall. There is no data available currently on insider trading therein, making it a comparative non-factor in these discussions.

As for retail investors who hold portfolios on TipRanks, they’re holding Stellantis in growing numbers. However, the numbers aren’t growing quite as fast as some would like. While the number of TipRanks portfolios holding Stellantis is down just under 0.1% in the last seven days, that figure is up 3.1% in the last 30 days.

Then there’s the matter of Stellantis’ dividend history, which is all over the map. A look at Stellantis’ dividend history going back to April 2010 shows quarterly dividend payouts ranging from $4.66 in January 2016 to $0.04 in May 2016.

There were three dividend payments in 2021—one payment of $2.24 in January was followed by $0.12 in March and then $0.38 in April—but there’s been just one this year so far. April 2022 saw a payment of $1.08 per share.

Stellantis Just Has to Beat One Problem

There’s very good news for Stellantis right now. Cars haven’t been this expensive in a long time. Cars bought years ago have held their value in place so well that they’re worth almost as much as they were when they drove off the lot. In some cases, people are discovering that their used cars actually appreciated in value.

That means Stellantis would be pretty easily able to weather a downturn; if it sells fewer cars at a higher price, then it’ll make about the same amount as it would make selling more at a lower price. However, if it can find a way to beat the chip shortage, then it can sell more cars at a higher price than normal. In doing so, it puts itself in an excellent position to profit.

The question, of course, is just how it’s actually supposed to pull that off. Companies have been frantically trying to work around the chip shortage for most of the last two years, by some reports.

It will have to do so comparatively quickly. However, there are signs that the chip shortage is already starting to slow down, as PC components, 5G-related chipsets, and more have seen their demand/supply gaps narrow – and not because demand is dwindling, either.

Any move it can make to step up production will therefore be highly useful. The FIM CISL reports that stated production this year was likely to drop also noted that this would be the fifth consecutive year that production in Italy declined.

In fact, the FIM CISL reports suggest that chip supply for this year isn’t improving and will likely continue to hit production in 2023. That’s at odds with other reports from as recently as late April.

Regardless, the more that Stellantis can do to overcome the chip shortage, the better placed it will be, going forward. Speculators can have a field day here. Especially given that Stellantis shares are down around their lows for the year. The upside potential, measured against price targets, is massive.

Concluding Views – Stellantis Has Plenty of Potential

There are many reasons to like Stellantis right now. It has name recognition. You may not recognize Stellantis right off. However, you almost certainly know Chrysler. Its stock is selling at prices not seen since the pandemic in 2020. Several metrics of investor sentiment are actively improving as well.

Sure, the insider trading part is a little concerning. Worse, that dividend bounces around like it’s decided by the chicken/kazoo combination that South Park’s “Margaritaville” episode popularized.

Nonetheless, there are plenty of solid metrics in Stellantis’ favor. If it can overcome the chip shortage, it puts itself in a great position to sell cars at lower prices.

That makes it a terrific potential alternative to almost every other car maker on the market. This is particularly true given a recession coming up, or possibly here, depending on who you talk to.

Throw in a potentially excellent entry point, and Stellantis might just be one of the big success stories of 2022 if everything goes well.


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