RIVN Stock: Don’t Sweat the Small Stuff, Keep Calm and Carry On

In recent days, multiple analysts on Wall Street have been defending Rivian (NASDAQ:RIVN) stock, and I’ve become convinced that the worries about the company’s production shortfall are overblown. Moreover, I’ve recently become more optimistic about the longer-term macro outlook for high-quality growth stocks in general.

As a result of these points, I continue to be very upbeat on Rivian’s long-term outlook.

Analysts Have Been Defending RIVN Stock

On Jan. 14, Mizuho Group (NYSE:MFG) defended RIVN stock on weakness. The firm was upbeat on the electric vehicle (EV) maker’s ability to expand to Europe and noted that the automaker had met its goal of producing at least 1,010 EVs in December. Mizuho was also optimistic about the company’s focus on the more profitable SUV and premium segments of the U.S. auto market.

Also bullish on Rivian earlier this month was Morgan Stanley (NYSE:MS). The firm named RIVN stock as its second-favorite pick in the auto sector, writing that Rivian has a “call option on Amazon’s need to address existential CO2 emissions.” Giving the automaker very high additional praise, the firm wrote that, “While 2022 will see ups and downs while in ‘ramp mode’ we think Rivian is ‘The One’ for your EV portfolio.”

Finally, after conducting a cash flow analysis of Rivian, Redburn believes that the shares are worth $141. The firm think that, within nine years, Rivian’s could sell 1.5 million EVs, translating to sales of $78 billion and a 17.6% earnings before interest, taxes, depreciation, and amortization (EBITDA) margin. As a result, by 2030, Rivian’s valuations will be similar to those of “BMW, Ford and Volkswagen” but Rivian’s growth potential and profitability will  probably be far above those automakers, the firm contended.

Worries About Rivian’s Production Shortfall Are Overdone

As InvestorPlace contributor David Moadel noted in December, one of the reasons why RIVN stock has dropped so sharply since its initial public offering (IPO) is that it anticipates that it was “a few hundred vehicles short” of its goal to produce 1,200 vehicles in 2021. And indeed, earlier this month, another InvestorPlace commentator, Joel Baglole, stated that Rivian said that it had manufactured 1,015 EVs in 2021.

So actually, Rivian produced 185 fewer EVs in the fourth quarter than it had previously anticipated.

There are a couple of points about the shortfall that I think should be fairly obvious, but that I haven’t seen anyone else make.

First, falling 15% or 185 vehicles short of the target is, in the bigger picture, a relatively small shortfall. And secondly, even multiple, huge, well-established automakers are having trouble meeting demand right now. All automakers large and small have been facing chip shortages, labor shortages, and supply chain issues. Consequently, it should not exactly be shocking for a start-up automaker like Rivian to end up slightly short of its production target.

Unrealistic Expectations and a Rich Backer

Beyond those common-sense arguments, I think it’s a little bit unrealistic to worry about Rivian falling on its face in terms of production when, as of the end of the third quarter, it had more than $5 billion of cash.

Moreover, one of the largest, wealthiest companies in the world, Amazon (NASDAQ:AMZN), has invested a great deal of time and money in Rivian; in fact, the tech giant has ordered 100,000 EVs from Rivian, and it has a 20% stake in the automaker.

So if Rivian needs a few more billion dollars to beef up its production, I’m sure Amazon can locate that money under its proverbial couch cushions. And Rivian could easily find ways of accelerating its EV production if it needs to do so.

Worries About the Macro Outlook Are Overdone

Assuming current inflation forecasts prove to be correct, I think that the current widespread fears of: a recession, four interest rate hikes this year, or some other kind of macroeconomic disaster are quite exaggerated.

The recent year-over-year inflation reports have been shockingly high. But a big part of the reason for that is the fact that consumer spending, and the economy in general, was all somewhat depressed prior to the introduction of vaccines. And now we still have some pent-up demand that was released in the wake of the introduction of the vaccines.

But by the end of this year, the Federal Reserve expects inflation to fall to 2.6%. And DataTrek Research said at the very end of 2021 that 2022 inflation could come in at 4%.

Been There, Done That

For those who never experienced inflation much above 2.5%, 4% might sound catastrophic. But it’s really not. I’m old enough to remember people’s general attitudes about the U.S. economy in 1984. I recall that most Americans and the media were quite upbeat about the economy that year, and in fact, President Ronald Reagan resoundingly won reelection in November 1984. He won largely because the economy was viewed as doing very well and inflation was seen as widely under control.

Believe it or not, the U.S. inflation rate in 1984 was 4.3%. Inflation at that level does badly hurt many people and businesses, and it’s shocking for Americans now. But the historic evidence shows that, for the economy as a whole, it does not create a crisis. Therefore, I agree with Fitch Ratings, which expects the Fed to hike only two times this year.

In general, I do not expect interest rates to rise as much this year as many seem to expect. Therefore, I expect the shares of growth companies that are moving towards success and profitability to rally sharply as the year progresses. And I would put RIVN stock in that category.

The Bottom Line on RIVN Stock

Worries about Rivian and its shares are far overdone, while the stock remains meaningfully undervalued.

Consequently, I continue to view it as a good pick for long-term investors.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Larry Ramer has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015.  Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.

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