As the 2024 election approaches, investors are looking for opportunities to profit from potential policy shifts. If Kamala Harris becomes president, her focus on climate action and clean energy could reshape the market. So, what’s the #1 stock to buy in this scenario? Aspen Aerogels (ASPN) stands out, particularly because of its strong position in the electric vehicle (EV) sector, where federal mandates are likely to accelerate growth.

Harris’s Environmental Agenda: A Green Future for EVs

Kamala Harris has consistently advocated for aggressive climate policies, including the acceleration of electric vehicle adoption and decarbonization of transportation. With the U.S. aiming to achieve net-zero emissions, Harris’s leadership could mean even stricter emissions regulations, increased EV incentives, and support for EV infrastructure. This will benefit companies involved in the EV supply chain—especially those focusing on advanced technologies that ensure EV safety and efficiency.

Aspen Aerogels is at the center of this transformation. The company’s PyroThin® thermal barriers, which play a critical role in managing thermal runaway risks in EV batteries, make Aspen an essential player in the clean energy transition.

Aspen Aerogels and the Booming EV Market

The growth of the electric vehicle market is one of the most significant trends in the clean energy revolution. During its Q2 2024 earnings call, Aspen Aerogels reported that EV thermal barrier revenues reached $81 million, representing a 6.4x growth year-over-year, driven largely by the ramp-up of General Motors’ Ultium EV platform. With major automakers like GM, Honda, and Ford increasing their EV production, Aspen Aerogels is positioned to capture a significant share of this expanding market.

The company’s PyroThin® technology is integrated into over 60% of new EV nameplates in 2024, making it a critical component of the industry's push toward higher safety standards and performance.

EV Mandates and Government Support

One of the key drivers of Aspen Aerogels' growth is the increasing number of government mandates related to emissions and EV adoption. Under a Harris presidency, the federal government would likely accelerate these efforts by imposing stricter fuel economy standards and promoting state initiatives like California's zero-emission vehicle (ZEV) mandates, which target 100% EV sales by 2035.

The EV market has already seen significant momentum, with July 2024 U.S. EV sales rising by 825% compared to 2023. This growth is expected to continue as manufacturers ramp up EV production to comply with emissions regulations. Harris’s potential presidency could further fuel this trend by introducing additional subsidies, tax incentives, and infrastructure investments that would drive up EV demand—and in turn, Aspen Aerogels’ thermal barrier products.

GM Ultium and PyroThin®: Leading the Way

One of Aspen Aerogels' standout clients is General Motors, which is aggressively expanding its Ultium EV platform. By the end of 2024, GM Ultium production is forecasted to reach 244,000 vehicles, and Aspen Aerogels' PyroThin® barriers are already a key component in these EVs​. GM’s commitment to electrifying its fleet will require ongoing thermal barrier solutions, and Aspen Aerogels is primed to meet this demand.

As production increases, Aspen Aerogels anticipates further growth in its EV thermal barrier business, bolstered by new awards from other major OEMs. This positions the company as a go-to supplier for thermal management solutions in electric vehicles.

The Future of Aspen Aerogels Under a Harris Presidency

Under Harris, Aspen Aerogels could benefit from a broad range of policies that promote clean energy and EV adoption. Not only would federal mandates likely push automakers to scale up EV production, but increased government funding for clean energy technologies could help Aspen Aerogels expand its capacity.

Aspen is already making significant strides in meeting rising demand. In Q2 2024, the company reported strong profitability and is progressing with its plans to open a second plant in Georgia with the support of a Department of Energy loan. It’s estimated this new plant can drive additional revenue of $1.2B - $1.6B per year. Management says they have received “conditional approval” of the loan already, and are awaiting final approval. These expansions will enable Aspen to meet the surging demand for PyroThin® and continue its dominance in the EV thermal barrier market.

Why Aspen Aerogels is the #1 Stock Pick

Aspen Aerogels’ focus on the fast-growing EV market, its strong relationships with major automakers, and its advanced thermal barrier technology make it the top stock pick if Kamala Harris becomes president. With an agenda focused on decarbonizing transportation and pushing EV adoption, Harris’s policies would likely create a favorable environment for Aspen Aerogels to grow rapidly.

These are the words of Oda Nobunaga, a Japanese warlord and strategist. Known for laying the foundation for unification, Nobunaga is considered one of the most influential figures in Japanese history.

So why are we talking about him? 

Investing and war have one commonality – both are filled with uncertainty. More accurately, the role randomness plays in both domains is quite high.

In the short run, it’s possible for bad decisions to lead to good outcomes and good decisions to lead to bad outcomes. In unpredictable environments, those who are unable to control risk are fired (in the case of investment managers) or killed (in the case of warlords). Thus, there’s a lot to learn from someone who successfully held onto power for so long in a field where most die young. 

Oda Nobunaga rose to fame after the Battle of Okehazama in 1560, when he successfully defeated an army of 25,000 men led by the powerful warlord Imagawa Yoshimoto. The impressive part about this feat was that Nobunaga was pitifully outnumbered, with only 2,000 men. The battle was beautifully executed, with Nobunaga catching the Imagawa army by surprise through an ambush and defeating them. 

Most focus on the tactical brilliance of Nobunaga in bringing about victory. But the important part of the story, in my opinion, is what happens after. 

As great as his feat in the Battle of Okehazama was, Nobunaga understood that part of why he won was due to luck. Yes, he had done everything in his power to win and did so with perfection, but he knew that even the slightest tweak in fate would have resulted in miserable defeat. Relying on the genius of himself or his comrades was not a sustainable strategy. 

From then on, Nobunaga avoided all unnecessary battles. He ran when he could. He did not care about saving face. In the rare case he engaged, he did so with the utmost overwhelming force. These are the tactics that made Nobunaga known as the “Great Unifier” of the Sengoku and Azuchi-Momoyama periods.

The era in which Oda Nobunaga reigned was filled with brilliant generals, but only he understood the role of luck.

Reading about Oda Nobunaga reminded me of something the late Charlie Munger said about Warren Buffett. Munger once said that he had never seen Buffett write down a calculation of any sort before investing in a company. Some may interpret this as a sign of genius – perhaps he does these calculations in his head – but I believe it’s something different.

Warren Buffet understands deeply the importance of probabilistic thinking. Since investing deals with randomness, we must come up with a very approximate probability distribution of possible outcomes before betting.

Nobunaga and Buffett share the same strategy: only act when the probabilities are overwhelmingly in your favor. Both do not act when their estimated probability of winning is slightly above their chances of losing, say 60:40. They only do so in cases of extremely high likelihood, something like 95:5. This is precisely why Buffett does not need to calculate anything on paper before making a deal. He only acts when an asset’s price has diverged so significantly from intrinsic value that it’s glaringly obvious the asset is undervalued. Though even Buffett cannot tell the difference between a 55:45 or 60:40 proposition in advance, he does know when the probabilities are heavily tilted in his favor. 

However, if you only bet in extremely favorable situations, you could still lose for one of two reasons:

1. You could be wrong about the probability distribution.

2. The extremely unlikely scenario might unfold or the unexpected may occur.

Unlike in war, there is a way of investing to “lose less” in these unfortunate situations. This is achievable through a concept called Margin of Safety – the three most important words in investing according to Warren Buffett and probably the reason why he’s lived longer than Nobunaga.

But that’s a topic for a later article.

This rise has been fueled by aggressive interventions from China’s central bank. The People’s Bank of China (PBOC) recently slashed key interest rates and injected liquidity into the financial system to stimulate growth and stabilize its markets. These efforts came in response to China’s economic slowdown, made worse by a troubled real estate sector and weaker consumer demand.

This Bull is “All-In” on China

Billionaire hedge fund manager David Tepper recently appeared on CNBC, where he emphatically urged investors to buy Chinese stocks. Tepper, who has a track record of accurately calling market moves, cited China’s ongoing economic stimulus measures and attractive valuations as reasons for his optimism:

The Temptation to Chase the Rally

With Chinese stocks seeing significant gains and high-profile endorsements like Tepper’s, the temptation to jump into the market is real. Many investors are eyeing Chinese tech giants and consumer-facing companies that appear undervalued compared to their U.S. counterparts. China’s central bank seems determined to keep the market afloat, which makes the allure of these stocks even stronger.

But beneath the surface of this rally, a major risk looms: the upcoming U.S. election. While the short-term outlook might seem enticing, the possibility of new U.S. tariffs—especially if former President Donald Trump wins the election—could severely disrupt this momentum. Trump has openly discussed transforming the U.S. into a “tariff economy,” which could have devastating consequences for Chinese companies that rely heavily on U.S. trade.

Trump’s Vision of a “Tariff Economy”

During his presidency, Trump imposed widespread tariffs on Chinese goods, sparking a trade war that sent shockwaves through the global economy and U.S stock markets. Now, Trump has made it clear that if he returns to office, he intends to double down on tariffs, aiming to turn the U.S. into a “tariff economy.” This concept hinges on the idea that tariffs should be a cornerstone of U.S. economic policy, protecting domestic industries while imposing taxes on imports.

If Trump wins the election and pushes forward with even more aggressive tariffs, it would be a serious blow to Chinese companies that depend on U.S. demand. During the initial wave of tariffs, companies such as Alibaba, Huawei, and JD.com saw revenues dip as the cost of doing business with the U.S. increased dramatically. A renewed trade war could have similar, if not worse, consequences.

Market Volatility Leading Up to the Election

Elections are always a period of heightened volatility in financial markets, and Chinese stocks could be especially vulnerable this time around. As the U.S. election approaches, any sign of Trump gaining ground in the polls could cause investors to panic-sell Chinese equities, anticipating the return of tariffs. This could lead to wild swings in the stock prices of Chinese companies that are heavily reliant on U.S. trade, making it a treacherous time for investors.

Furthermore, the rhetoric around China-U.S. relations is likely to intensify as the election heats up. Candidates from both parties may take a tough stance on China to appeal to voters, increasing uncertainty around future policies and trade relations. For risk-averse investors, this volatility could make it difficult to find a safe entry point into Chinese stocks.

Supply Chain Disruptions and Global Impact

Tariffs aren’t just a bilateral issue between the U.S. and China—they have broader implications for global supply chains. The previous round of U.S. tariffs forced many companies to shift their production out of China, disrupting the flow of goods and raising costs for manufacturers worldwide. If Trump were to escalate tariffs again, this could reignite supply chain instability, making it even more difficult for Chinese companies to operate smoothly in international markets.

Chinese companies that manufacture components or products for U.S. firms could face steep declines in demand, as American companies might turn to other countries to avoid tariffs. This would hurt both their revenue and stock performance, making Chinese stocks a risky bet.

What Happens if Tariffs Are Expanded?

Trump has hinted that, if given the chance, he could go even further than before in implementing tariffs, not just on goods, but potentially on services and digital products as well. This could impact Chinese tech companies like Tencent and Alibaba, which have been looking to expand their digital presence in the U.S. market. New tariffs on digital goods or services could stifle that growth and cut into profits.

Additionally, a more expansive tariff regime could affect other industries that haven’t been targeted yet, increasing uncertainty and risk for investors holding Chinese stocks.

Waiting for Post-Election Clarity

While the recent rally in Chinese stocks is tempting, the uncertainty surrounding the U.S. election and the potential for more tariffs makes it a risky time to invest. Investors may be better off waiting until after the election, when the policy landscape will become clearer. If Trump wins, it is almost certain that tariffs will play a central role in his economic strategy, which could severely impact Chinese companies and their stock prices.

On the other hand, a Harris victory could lead to more diplomatic trade relations, offering a more stable environment for Chinese stocks. Either way, by waiting until after the election, investors can make a more informed decision based on actual policy changes rather than speculation.