Media critics and big bank analysts have never really taken a shine to Nio (NYSE:NIO) stock. Even the most generous pundits rarely are willing to give the company an enthusiastic “strong buy” rating. That lack of enthusiasm seems to have spilled over and impacted investor sentiment. As things stand, the Nio stock price is sharply down year-to-date.
I, for one, tend to view analyst estimates and projections as a lagging indicator. And retail investors collectively are even worse in this regard.
A forward-thinking analysis, I believe, should provide a more positive outlook for Nio stock. There’s no need to blindly follow the critics when you’re armed with the cold, hard facts.
The Tesla Effect
People will always compare NIO to its much more well-known rival, Tesla (NASDAQ:TSLA). However, the latter’s recent performance hasn’t exactly inspired optimism. I call it the “sympathy effect.” If one famous name in a sector goes down sharply, investors will often panic-sell their shares of same-sector stocks. This happens even if it’s completely irrational to do so.
Tesla’s troubles provide a textbook example of one player ruining the game for everybody. TSLA stock shook a whole lot of retail traders out when it gapped down nearly 14% on the morning of July 25, prompting television’s talking heads to unduly denigrate the entire electric vehicle market. Granted, Tesla’s announcement wasn’t exactly auspicious: analysts projected adjusted net earnings per share for the second quarter of 2019 at a loss of 36 cents. They were stunned when the actual figure was a loss of $1.12.
While They Hate, I Celebrate
Personally, I relish the opportunities that sympathy trades offer: prices in perfectly good companies come under irrational selling pressure when a competitor encounters issues. Meanwhile, your typical analyst’s knee-jerk reaction is to disparage a company when the share price is down. That’s the complete opposite of my contrarian investing approach.
Consider, as a case in point, UBS analyst Paul Gong, who recently reiterated his neutral rating on Nio stock. He’s concerned that “uncertainty remains,” even though Gong fully admits that Nio’s ES6 model “could record 2k+ monthly deliveries in H219, making it the best-selling premium car from a local brand.”
Why can’t these analysts shift their gears out of “neutral?” Along with their bias against Tesla, which traditional analysts tend to view as a “cult stock,” here’s another angle: I believe they’re just waiting to see if this relative newcomer has staying power over the long term. If it does, they’ll give it their seal of approval, but not before then.
But that’s not how you generate wealth: I look to under-the-radar opportunities, not the hyped and bloated names that everyone else is championing. These are the market’s real moneymakers.
Keeping Nio Stock in Perspective
Ultimately, a position in Nio stock is a vote in favor of the emerging electric vehicle market. This is a truly global industry that’s taken much more seriously abroad than in America. Sometimes I hear people discussing the electric vehicle phenomenon in Europe. However, China is also a potential epicenter of activity as the nation comes to grips with its entrenched pollution problem.
The fact is, auto-industry experts project electric-powered vehicles to comprise 8% of passenger-vehicle sales in China by the year 2020; that number, while already sizable, is predicted to increase to 20% of passenger vehicle sales by 2025. Better yet, it could even reach 68% in 2040.
Imagine that: the majority of Chinese cars being electric-powered vehicles. And imagine how much higher the NIO stock price could be if you and other investors just held on to their shares. That’s a better route than freaking out every time an analyst has second thoughts about the company.
The Bottom Line on NIO
You can choose to fall victim to group-think, or you can choose to make your own decisions based on the facts. As for me, I see NIO’s ES6 model as the next step in the evolution of the revolution: the electric vehicle revolution, that is, and it’s coming whether the analysts like it or not.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
