Growth stocks were taken to the woodshed in January, finally sending the entire market tumbling with them. However, over the past week or so, these stocks have stabilized, and a few have started to break out. Mike Parks has Identified one such stock that looks like it could break out short-term and may have massive longer-term potential.

The Professor, Mike Parks, is Raging Bull’s Senior Training Specialist.

Mike is a veteran trader and educator and is adding a level of insight to Total Alpha that can only come from decades of experience in trading and market education.  

Mike has incredibly knowledgeable on all things markets and his talent for teaching new traders how to use market signals to choose the right options strategies is unmatched.

Archer Aviation (ACHR) is a new company in a new industry known as eVTOL. eVTOL stands for Electric Vertical Take-Off and landing. Basically, they are electric helicopters with multiple propellers.

What makes this new form of transport so intriguing is how quiet these vehicles are, which could open up an exponential growth opportunity as metropolitan travel moves into 3D on a large scale.

Electrified Air Mobility

With ever-increasing battery technology capability, electric flying vehicles are now a reality. Numerous flight tests have already been performed by the industry leader in the U.S Joby Aviation (JOBY). 

What makes this sector so exciting is that it is potentially an entirely new form of transport. You see, traditional helicopters are limited by a number of factors. First of all, they are very loud, which limits their viability in many urban locations due to noise complaints. Thus they are limited in the locations where they can take off and land.

Furthermore, helicopters have hundreds of moving parts, where if one of them fails, the flight can be a disaster making them riskier than other forms of transport. Due to the complexity of building helicopters are also very expensive to manufacture. Thus they are costly to buy and for travel use. eVTOL vehicles aim to solve the above problems and move metropolitan travel into the 3rd dimension, the sky, on a large scale.

Archer Aviation (ACHR) is an eVTOL company out of Palo Alto, California. At this point in time, Archer only has a prototype called the Maker. The Maker is Archer’s full-scale electric vertical take-off and landing aircraft that will be capable of traveling 60 miles at 150 mph. In December 2021, Maker had its first test flight and was able to hover, you can watch the video here 

Archer will commence test flights throughout 2022.

Having been founded only in 2020, ACHR is a fairly new company. However, they have poached some of the very best engineers from Wisk and Airbus who have years of eVTOL experience. 

Geoff Bower, the chief engineer for Airbus’ Vahana program, holds the same title at Archer. Tom Muniz, previously VP of engineering at Wisk, also joined the company in the same position.

However, having poached some of Wisk’s best talent who has been working on eVTOL for over 10 years, ACHR has had a lawsuit brought against them by Wisk, accusing them of stealing trade secrets. This legal overhang led to a halving of their valuation pre-merger to a valuation of $1.7billion and has attracted short interest due to potential liability. We have seen such lawsuits in the past between Facebook and the Winklevoss twins, as well as between Uber and Waymo. This legal uncertainty makes ACHR an even riskier investment.

In January 2021, Archer announced it had entered into a strategic collaboration agreement with Stellantis, the parent company of Fiat Chrysler, with a focus on accessing its low-cost supply chain, advanced composite material capabilities, and engineering and design experience. They are working with Stellantis on mass vehicle production capabilities.

Archer is also partnered with United Airlines, which has an equity stake in the company. Under the terms of its agreement, United has placed an order for $1 billion of Archer’s aircraft. Given that they have a pre-order for $1billion and their market cap now stands at less than $700 million according to FinViz, ACHR could be trading at a very cheap valuation if their legal troubles prove to come to nothing.

ACHR is also planning to have an UBER-like air taxi service up and running by 2024. 

Industry Opportunity

Morgan Stanley predicts urban air mobility to be a $1+ trillion market by 2040. Given that the 3 current leaders in this new industry have market caps of less than $10 billion combined, the growth prospects are outstanding. 

However, Archer (ACHR), along with its competitors, are not expected to begin operations or have any significant revenue until 2024 when these aircraft are due to be produced on a large scale and FAA certification is expected. This is a situation somewhat similar to the .com boom, where pre-revenue internet companies were being listed. Thus the opportunity is immense, but being mostly startups, the risk is also there. 

The Trade

ACHR is finding a double bottom and starting to trade in a sideways consolidation pattern now as buyers and sellers are fighting for control between the two swing points.

On the chart above, the two-line MACD is showing a Positive Divergence signifying bullish pressure. This is telling me that the buyers are starting to gain momentum and the pressure is building for a breakout to the upside.

Seeing that the MACD is bullish is an extra reason why the price could be breaking bullishly above $3.31 which corresponds with the buy point for the breakout. 

Pro tip: A double bottom often reverses the downtrend to an uptrend, I’ll keep my eye on this pattern unfolding 

My Trade: I’m buying the stock in this case. 

Bottom Line

eVTOL vehicles will soon become a reality, as the incumbent players such as Archer Aviation (ACHR) aim to have an UBER-like air taxi service up and running by 2024. Given that Morgan Stanley estimates a $1 trillion market by 2040 and the 3 market leaders have a market cap of less than $10 billion combined, this could be an immense investment opportunity in a completely new sector. 

However, the fact that these companies are all mostly pre-revenue startups means the risk here from an investment standpoint is immense. 

The Professor Mike Parks has identified a short-term trading opportunity in Archer (ACHR). Given how oversold this stock is from its IPO price in a very exciting sector, this stock could have a nice breakout in the short term.