Zombies and EVOTLs

Prediction: Archer stock will climb to $15 a share in 2025

Zombies are real. According to the always reliable source, wikipedia, a zombie company either needs a bailout or is indebted to the point where it can essentially only service its debt. These companies really aren’t that rare and from an investing standpoint, it’s pretty clear they are a bad idea. How about a company that peeked from a valuation perspective years ago but is now back from the brink of death? That is a company that could be appealing. These aren’t quite zombie companies and they never actually died so we can’t call them Lazarus companies. These are organizations that battled back from the ICU and could once again have a shot at healthy returns. Last year I used this “investment strategy” across a handful of companies, which has led to over 100% returns. I’ll highlight one of those companies that has returned from the brink and make a prediction on where it is going in 2025.

First, if you like investing, you should read “The Intelligent Investor” by Benjamin Graham, primarily so you can tell other people you read it. I’ve read it. See? You’re already impressed. Secondly, that book is viewed as the Bible of investing and it will tell you in about a thousand different ways that “investing” the way I am about to describe is the opposite of the intelligent investor. So just follow the advice, read the book, buy index funds and walk away.

For those of you still reading, let me tell you about Archer Aviation. A brief history of the company shows that they were founded in 2018, raised venture capital, went public via SPAC in 2021, briefly traded at $10, then languished for several years as a penny stock (trading at less than $5). Now what about this makes it an appealing investment opportunity? Because sitting in traffic sucks. Archer has a solution and it does not involve tunnels (sorry Elon). EVTOLs (electric vertical take-off and landing) are coming. Think of a better helicopter. They check a lot of boxes. EVTOLs don’t need long runways, they are fast, they are quiet, they are climate conscious, and they can perform routine trips quickly. This technology has never been closer to reality and closer to the market. Archer has spent over half a decade developing, testing, and building a technology that actually works with positive momentum on domestic regulatory approval in 2025 along with growing interest in the Middle East and Asia.

Archer stock in recent months has jumped from $3 a share in October, up to $12 and now trading around $9 a share as of this writing, bringing its market cap to $3.8B. Archer went public at a $3.8B valuation in 2021. Smart investors once believed in the potential of this company if it could get to market. Over 3 years later, it is closer than ever to achieving that initial vision. If that initial valuation had simply accrued value at the rate of inflation it would have been worth $4.6B. The S&P 500 has increased by 28% since Archer went public. The stock valuation should reflect that it has survived most of the product development wasteland. The current price for Archer is an opportunity to buy high 2025 upside at 2021 prices.

With an estimated $6B in orders, enough capital on hand to get to market, partnered with prominent companies like Stellantis and Anduril, Archer is poised to develop into a company that can deliver a new technology and capture a real opportunity. To emphasize the upside, a comparison could be made with Rivian. That electric car company is 15 years old, still loses money on every vehicle it sells, is backed by another major car company (VW), yet it is valued at over $14B. Archer at a $3.8B valuation has plenty of room to take off, with a reasonable path to $20 a share.

If you are still reading this, let me once again remind you that Benjamin Graham, Warren Buffett and a multitude of smart people would tell you “investing” like this is a bad idea. Past performance is not indicative of future results and all that jazz. Buy ETFs, buy index funds. Archer has a P/E -8.39 and income of -$450M, there is risk in investing in this stock. The upside may never materialize, the regulatory approval may never come.

My prediction is that as EVOTLs becomes more popular and accepted, the stock will continue its 2024 rise in value and Archer will hit $15 a share in 2025. This year I’ll highlight a few other companies or predictions for the market. There will be losses. There might be gains (currently up over 100% on unrealized Archer gains). The difference between riding in an EVTOL or seeing one fly overhead might be determined by whether or not you subscribe. (Since we established that zombies are real, I would rather be in the EVTOL than on the ground, but that’s just me).

***Disclaimer: The stock picks and investment recommendations provided in this newsletter are for informational and educational purposes only and should not be considered financial advice. Investing in stocks carries inherent risks, including the potential for complete loss of capital. Past performance is not indicative of future results, and there are no guarantees that any stock mentioned will perform as expected.***