Long-Term Investors Should Buy a Small Amount of Nio Stock on Weakness

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After Nio (NYSE: NIO) stock fell sharply from its recent highs, I believe that longer-term investors should look to buy a small amount of NIO stock on weakness.

A Nio (NIO) sign outside of the company's facilities in Shanghai, China.
Source: Andy Feng / Shutterstock.com

That’s because, boding very well for Nio and its shares, the company’s deliveries and revenue continue to increase very rapidly, while its new ET7 electric vehicle appears to be very appealing. Also importantly, Nio’s autonomous-vehicle technology seems to be quite advanced.

However, in the automotive sector, my top pick at this point is BlackBerry (NYSE:BB). The latter company is very well-positioned to benefit from its upcoming automotive app store, and the company could also get a boost from a new patent it recently obtained.

Nio’s Strong Growth

On March 1, the Chinese EV maker reported that its sales had soared 149% year-over-year to $1.02 billion. Its vehicle margin in Q4 came in at 17.2%, way up from -6%. This was during the same period a year earlier and meaningfully higher than the 14.5% vehicle margin it reported in Q3 of 2020.

What’s more, Nio reported that it had delivered over 17,300 EVs in Q4, versus more than 8,200 during the same period in 2019 and over 12,200 in the previous quarter.

During the current quarter, Nio reported that it expects to deliver “between 20,000 and 20,500 vehicles, representing an increase of 15%-18% from the previous quarter.”

In light of Nio’s extremely powerful growth, it’s clear the demand for the company’s EVs continue to surge in China.

Nio’s New ET7 EV Will Likely Accelerate the Company’s Sales Growth

In January, Nio unveiled its ET7 electric SUV. According to MotorTrend, the EV can be acquired with technology that makes it “fully autonomous”  Moreover, a version of the vehicle can drive an incredible 620 miles on one charge (although that capability will not be available until 2022) , while another version can drive a still-hefty 435 miles on a single charge.

The “fully autonomous” ET7 includes ” 11 eight-megapixel cameras on board, one ultra long range LiDAR unit, five millimeter-wave radar cameras, 12 ultrasonic sensors, and two positioning units,” MotorTrend noted.

Additionally, the ET7 includes many elegant features, including  “standard soft close doors, heated and ventilated front and rear seats, a nifty looking digital cockpit, and a 23 speaker, 1,000-watt sound system.” The ET7 with a range of 435 miles can be acquired for $78,000, which is not too stratospheric.

CarandDriver reported that the ET7 can “accelerate to 62 mph in a swift 3.9 seconds.” According to the website, “The Nio ET7 is a luxury sedan with a simple yet attractive design.”

BlackBerry Stock Has Much More Potential Than Nio Stock

As I noted in a previous column, BlackBerry is partnering with Amazon (NASDAQ:AMZN) “to develop an app store for connected cars.”

Such an app store looks poised to be very lucrative for BlackBerry; I calculated that if the store “generates just 10%” of the revenue that Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) gets from Google Play, BlackBerry would receive a revenue hike of $1.9 billion per year. Since, in fiscal 2020, BlackBerry reported slightly more than $1 billion of sales, the auto app store should greatly lift BB stock.

On March 16, Seeking Alpha reported that BB stock was rallying based on a recently divulged 2017 patent application for ““methods and systems for autonomous vehicle refueling.” If BlackBerry obtains the patent and its method for enabling AVs to notify attendants that they need to be recharged or refueled proves to be viable, the company can generate a great deal of sales from the patent.

Further, BlackBerry could be on the way to obtaining more patents that we do not yet know about for AV components.

Nio stock is currently trading for 22 times its trailing sales and has a market capitalization of $69 billion. BB stock has a trailing price-sales ratio of 6.4 and a market capitalization of just $6.5 billion.

The Bottom Line on NIO Stock

Nio’s success in China looks poised to continue. Even after its recent pullback, its valuation remains on the high side. BlackBerry’s revenue looks poised to soar over the long-term, surprising most people on Wall Street, and the valuation of BB stock is still very attractive.

Consequently, I recommend that long-term investors buy a small amount of NIO stock and a large helping of BB stock.

On the date of publication, Larry Ramer held a long position in BB. 

Larry has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been SMCI, INTC, and MGM. You can reach him on Stocktwits at @larryramer.


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