Conventional trading wisdom suggests selling half your position when a speculative growth stock doubles. This "sell-half" rule helps lock in profits while letting winners ride, protecting investors from the violent reversals common in early stage companies. Yet despite my 106% gain on Archer Aviation (NYSE: ACHR) from my $2.92 average cost basis, built through careful position scaling during market dips, I'm breaking this time-tested rule.
The reason? A perfect storm of catalysts suggests this rally could be just beginning. Let's examine why this electric aircraft pioneer might deserve special treatment, even as a highly speculative investment.
Image Source: Getty Images.
Institutional backing builds credibility
Archer's impressive roster of investors sets it apart from typical early-stage growth stocks. Global automaker Stellantis N.V., parent company of Chrysler, Dodge, Jeep, Ram, and Fiat, has demonstrated strong conviction by taking a 20% stake and partnering with Archer on manufacturing.
Meanwhile, heavyweight funds like BlackRock, Vanguard, and billionaire Israel Englander's Millennium Management have built significant positions. This institutional backing, still only at 35.9%, provides validation while suggesting room for substantial further investment flows.
The recent market rotation toward small-cap stocks adds another tailwind. Over the past 30 days, the Russell 2000 Index, where Archer is a component, has gained nearly 9% compared to the S&P 500's 2.97% rise, suggesting investors are hunting for value beyond megacap names. Archer has benefited from this shift, surging 93.5% during this period.
Short-sellers face mounting pressure
As of Oct. 31, short-sellers held approximately 20% of Archer's float-a significant overhang that could fuel further gains. The company's 2024 third-quarter earnings report revealed several developments that could force shorts to reconsider their positions.Archer's manufacturing facility will be completed within weeks, positioning the company to begin aircraft production in early 2025 with a target of two units monthly by year's end.
The company is also nearing completion of phase 3 in the FAA's four-phase certification process while advancing through the final phase. Perhaps most importantly, a planned Q4 2025 commercial launch in the UAE demonstrates real-world progress toward revenue generation.
The market opportunity is staggering
While competition in the electric vertical takeoff and landing (eVTOL) market will be fierce, Morgan Stanley projects the industry could exceed $1 trillion by 2040. Archer is emerging as a leading contender in the nascent eVTOL space through strategic global partnerships.
For instance, the company's recent agreement with Japan Airlines and Sumitomo Corporation's joint venture Soracle adds up to $500 million to its order book, bringing the total to over $6 billion.
With a current market cap of just $2.6 billion and comparable aerospace companies trading at 3.6 times sales, Archer appears significantly undervalued relative to its commercial potential.
Courtesy of Archer Aviation.
A calculated exception to the rule
Breaking the sell-half rule isn't a decision I've made lightly. Archer remains a speculative investment in an unproven industry, and maintaining my full position increases both risk and potential volatility. However, several factors support this departure from conventional wisdom.
First, I've built my position methodically, using market weakness to establish a favorable average cost basis rather than making a single large bet. This approach provides some cushion against potential drawdowns.
Second, the convergence of manufacturing progress, regulatory advancement, and commercial partnerships suggests Archer is transitioning from concept to reality.
Finally, the massive market opportunity, combined with strong institutional backing and a potential short squeeze, creates an asymmetric risk-reward profile that justifies maintaining full exposure, in my opinion.
While the sell-half rule remains valuable for managing risk in speculative stocks, Archer's unique combination of catalysts makes this an exception worth considering. As always with early stage growth companies, position sizing remains crucial-but for investors who've built their stake carefully, letting this winner ride could prove rewarding.
Don’t miss this second chance at a potentially lucrative opportunity
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*Stock Advisor returns as of November 25, 2024
George Budwell has positions in Archer Aviation and BlackRock. The Motley Fool recommends Stellantis. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
