Nio (NYSE:NIO) versus New Age Beverages (NASDAQ:NBEV)? Which can give the portfolio some “vroom, vroom” and which investment is bound to get smoked? Based on what’s happening off and on the price charts of NIO stock and NBEV shares, the answer may surprise you. Let me explain.
There’s a saying in the market if a stock goes under $5, it’s doomed. Beneath that magic level, many investors on Wall Street have a hands-off policy. In fact, many funds are prohibited from purchasing these low-priced stocks.
So are $2 and $3 NIO stock and NBEV destined for an obituary?
The reality is that one-size-fits-all, blanket-style rules of engagement don’t always serve investors best interests. Advanced Micro Devices (NASDAQ:AMD) which is among today’s top-performing large-cap stocks, is proof of that. Shares have gone from a sub-$2 share price four years ago to return over 1,650%.
More recently, alternative energy play SunPower (NASDAQ:SPWR) is having a standout 2019. After looking to be more or less on life support in 2018, when shares traded slightly below $5, SPWR stock has returned 135% year to date.
The point is, companies can and do turn around. Often enough, those gains happen while Wall Street continues to rely upon a faulty rearview mirror.
And this brings us back to NIO stock and NBEV. Could the smart money be less-than-prescient and at risk of being on the wrong side of tomorrow’s price action?
Low-Priced Stock No. 1: Nio Stock
NIO stock is unlikely to need an introduction to anyone familiar with Tesla (NASDAQ:TSLA) and the high-end electric vehicle arena. And not unlike TSLA stock, Nio has come under pressure in 2019. The difference for this China-based competitor is shares have the stigma of being a low-priced stock with spiraling losses and increasingly problematic debt.
AS InvestorPlace’s Ian Bezek has explained, NIO’s disaster-like situation could lead to a bankruptcy in the near future. Moreover, with shares sporting a market cap near $2 billion, there’s still a good deal of downside risk.
Technically, the chart is in agreement with NIO stock bears. This week’s woeful earnings report broke Nio shares beneath price support to all-time-lows.
My advice? Don’t get smoked going long Nio stock. I’d recommend gaining short exposure using NIO’s options market for a limited-risk strategy. One favored play with shares at $1.76 is the Feb $1.50 put for 45 cents, with a stop-loss set at 50% of the contract’s value.
Low-Priced Stock No. 2: NBEV Stock
This low-priced stock is, however, a much smaller player on a capitalization basis, with a market value of just under $250 million. Some might say it’s the end of the road. But off and on the price chart New Age Beverages stock may actually be turning the corner.
This week, Japan’s Narcotics Control Division and Ministry of Health announced NBEV is the first major company approved to sell CBD or cannabidiol products in that country. It’s a big win for New Age Beverages and should help with other countries following suit. Sure, maybe not overnight, but the takeaway for investors is definitely positive.
Technically, the deal news ramped NBEV stock by nearly 18%. Two days later, shares having given back roughly half of their gains after forming a near-year-long double-bottom pattern that’s been trying to overcome the resistance from a slightly broken 76% retracement level. As such, this low-priced stock is one to watch for some upside “vroom-vroom!”
My prescription for buying into NBEV’s potential turnaround is to wait for shares to confirm a bottoming candlestick. This could happen as early as next week on a price move above Tuesday’s high of $3.39.
Specifically, I’d wait for a move through $3.50 and slightly through the September high for added bullish price confirmation. And as this pattern bottom is playing out at just beneath the 76% Fibonacci level, I’d stress using a breakdown of support for exiting to guard against getting smoked.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.