Stocks to buy

NIO Is Entering Into a Whole New World

Well, we may be out of the pandemic and riding the big wave of sector rotation, but few of us predicted that Russia would invade Ukraine and turn the energy market and the stock markets upside down as well. But all this may well be to NIO (NYSE:NIO) stock’s advantage.

A close-up shot of the Nio (NIO) ES8 vehicle.

Source: xiaorui / Shutterstock.com

Yes, NIO is trading near its 52-week lows and it may head a bit lower given all the craziness in the markets right now. But one thing is certain: rising energy prices are going to make EVs even more interesting to prospective buyers than they were a few months ago.

The challenge has been deciding which EV makers to buy. I’m talking new EV makers here. Certainly, Tesla (NASDAQ:TSLA) remains a go-to electric vehicle (EV) stock for most investors wading into the sector.

But for my dollar, there are some newcomers that are doing very well and are finally coming down to prices – and market caps – that make them slightly more attractive.

NIO Stock Is Still Getting Love

I’ve written a fair amount of columns on EV stocks out there. And the one thing I have said for at least a year or more is that they were way too expensive.

To me, the frenzied pace of buying anything that was shiny – meme stocks, crypto and stable coins, EVs, etc. – is a sure sign that the market is getting toppy. The trouble is, with new investors joining the frey, they don’t know that it takes a while to actually hit a top.

Things get increasingly frothy until something materially changes.

The good times were built off of the low-interest rate, low-growth economy we have been living in for 14 years now. And it wasn’t just the Federal Reserve. Central banks around the world were doing the same thing.

That led Wall Street to figure out how to play the game to its advantage. And it did.

But as things started to get overheated with all the pandemic stimulus money sloshing around, Wall Street knew the hot sectors with massive market caps and matching price-to-earnings (P/E) – if the stocks even had earnings for P/Es – was coming to an end.

Real companies with real earnings were back. And so were bonds. Stocks are no longer the only game in town.

Blue Sky Coming

For EV companies like NIO, that actually wasn’t such a bad thing. NIO has been making cars and selling them at a brisk clip. It delivered more than 91,000 vehicles last year.

And recently, the second largest U.S. pension fund bought NIO stock. That isn’t an aggressive hedge fund or tech-focused mutual fund. It’s a conservative hedge fund with more than $325 billion in assets.

Ironically, NIO vehicles aren’t even sold in the U.S. They’re a premium Chinese car company selling to the Chinese market, at least for now. By the way, its name translates to “blue sky coming,” which is pretty appropriate for where NIO stock is right now.

As U.S. and China relations continue to cool, there will be more emphasis on buying local. The status of fancy European and U.S. cars won’t hold much cache as the Chinese auto industry introduces its own vehicles that have comparable fit, finish, build and performance qualities.

What’s more, the Chinese government has a vested interest to see its burgeoning car makers succeed, especially the EVs.

Good EV companies are now on the shopping list of funds and institutions that are looking for ESG stocks. And that will keep NIO stock on plenty of lists.

A Bad Year Is Good News

In the past 12 months, NIO stock has lost almost 57%. It has lost 50% in the past three months.

Granted, it still has a $34 billion market cap. And it may have further to fall.

But at this point, it’s at a place where if you get in and it continues to lose ground, it will likely make it up in the next year or two.

That may sound like a bold statement given the surprises we continue to live through. But if things stay relatively sane, NIO stock is a decent long-term holding at this point. But you still might want to buy in one piece at a time.

On the date of publication, GS Early did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

GS Early has been an award-winning financial writer and editor for nearly three decades, working with many of the leading financial editors and publishers during that time.

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