Part 6

NIO (NIO)

NIO Inc. is a pioneer in China’s premium electric vehicle market. The company designs, jointly manufactures, and sells smart and connected premium electric vehicles, driving innovations in next generation technologies in connectivity, autonomous driving and artificial intelligence. Redefining user experience, NIO provides its users with comprehensive, convenient and innovative charging solutions and other user-centric service offerings. NIO’s Chinese name, Weilai, which means Blue Sky Coming, reflects the company’s vision and commitment to a more environmentally friendly future.

The first model NIO developed was the EP9 supercar, introduced in 2016. Combined with an attractive design and strong driving performance, the EP9 delivers extraordinary acceleration and best-in-class electric powertrain technology, helping position the company as a premium brand.

NIO offers comprehensive value-added services and a convenient and innovative suite of charging solutions to its users. These solutions include Power Home, NIO’s home charging solution, Power Swap, the innovative battery swapping service, Power Mobile, the mobile charging service through charging trucks, and Power Express, the 24-hour on-demand pick-up and drop-off charging service. The company believes these solutions and services, together, will create a holistic user experience throughout the vehicle lifecycle.

The team at NIO, envisions a future where improved smart electric car technologies, coupled with a better car ownership experience, will drive increased appreciation and adoption of smart electric cars, leading to a more sustainable future for the planet.


Current position – Financial Performance & Future Growth Prospects

The electric vehicle (EV) industry is on the rise as innovation and environmental issues around the world have made it somewhat of a necessity. The market is growing at a tremendous annual rate as some of the market leaders continue to show that electric vehicles are the future by introducing new models, systems and an extended battery life. It seems that the EV market has really started to pick up some major traction in the last few years, which has of course resulted in many new and relatively young companies to get into this fast growing sector. And while NIO is indeed a relatively young company it seems that it is very well positioned to secure a strong market position in the rapidly growing electric vehicle (EV) space. A lot of analysts are criticizing the heavy influence that the Chinese government has over most Chinese companies, but being one the largest Chinese EV car makers has its benefits too. The firm’s good relationship with the government provides it with a strong support for its products and operations. We have seen a major push towards the electrification of the auto market in the country by the Chinese government, which is definitely a major positive for NIO.

The company has seen a rising demand of its ES6, ES8 and EC6 models, which is indeed enhancing NIO’s top line. During its most recent Q1 Earnings Report the firm also delivered a strong forward guidance for Q2 2021 revenues on the back of expectations for strong deliveries. Revenues and deliveries are forecast to surge 124% and 108%, respectively, on a year over year basis.

We expect to see strong growth ahead as a result of NIO’s strategic partnership with Mobileye for the development of driverless vehicles as well as the battery swap technology that the company is utilizing. NIO’s battery swap technology is a revolutionary concept in the EV space as it allows people to simply replace the whole battery instead of charging it. By providing something that your competitors can’t you gain a meaningful edge over them. The company claims that a battery pack can be replaced in its vehicles in about three minutes. The technology — which is part of NIO’s BAAS strategy — helps people save time when charging an EV and removes all of the range anxieties.

Now, a major concern for some value oriented investors is that NIO has not been able to turn a profit yet as a result of tough competition and high R&D costs. This is not a particularly great combination as it usually results in weak cash flows and rather pricey valuations. However, it is important to note that being one of the new players in the space and trying to break into a market that is still in its early stages of development is a very expensive task. Let’s not forget that it took Tesla Inc, the global leader in this space, 18 years to turn a full year profit! Thus, we believe that NIO has a very bright future ahead, which in turn makes the stock interesting and attractive at the current levels.

Technical Analysis

By looking at the daily chart, we can see the strong bullish rally that has occurred in the last 12 months taking the price from the March 20th, 2020 lows of around $2.30 to the $67 all-time highs in mid-January, 2021. This represented a phenomenal 2,813% gain for the stock in less than a year. However, the road to the above-mentioned all-time highs was not easy as it was filled with many different hurdles that the bulls had to overcome in order to keep pushing the price higher. There were few 10-20% corrective movements that took place during this strong uptrend, but the uptrend remained intact on all occasions. The stock has continued to attract a lot of investors’ attention as it remains one of the leaders in the Chinese EV space. NIO has not only established itself as a major player in this rapidly growing industry but it has also done so by offering a completely unique technology and business process to its clients. This in turn has turned the stock into a go-to choice for both small retail and large institutional growth oriented investors looking to add some EV emerging market exposure to their portfolios.

We will start buying the stock around the $37 support area. Should the price drop further in the short-term, we would be buying even more aggressively at the next strong support at $30 where more buying pressure is expected and it would give us a chance to get a better average price on our long positions. Our initial profit-taking target is set at $70, followed by the next target at $85 where we would be fully cashing in our profits.

The stock is currently sitting at $37 per share, which is roughly 45% below its all-time highs of $67 per share. We saw the stock recently finding a lot of buying interest around the $35 mark, which has now happened 4times in the last 3 months. There is obviously a strong horizontal support lying there, which has continued to bring a lot of buyers back to the market every time the price drops there. In the aftermath of the Q1 earnings call where the company talked about the production challenges that it faces as a result of the global chip shortage some investors saw that as a reason to start selling the stock, which resulted in a short-term decline from $41 down to the $35 strong support zone. The thing is that the most recent post-earnings decline came after the stock had already dropped with over 40% from its all-time highs, thus in our view most of the downward movement had already occurred in anticipation of the softer forward guidance for Q2.

As you know and as we have mentioned many times before, panicking has never made anyone any money. While we understand that NIO is an expensive stock from a value perspective, and if you only look at the financial metrics and ratios of the company, it is important to remember that this is a high-growth stock, that continues to report remarkable numbers of new orders, deliveries and models in the fastest growing EV market. The better growth opportunity that a certain stock represents, the more expensive it tends to be as investors are pricing in that future growth into today’s price. And if you don’t believe us just look at Tesla’s P/E multiple.

Investors should see the recent price declines as an opportunity to buy into one of the leaders in the EV space at a 45% discount as the company is planning a European expansion later in 2021, which is expected to be a game changer for NIO and for the stock. In our view this is definitely an opportunity that every growth oriented investor should look at. We believe that the recent declines are heavily overdone and that the stock will find enough buying interest at the current levels, in order to resume its uptrend. Could the stock go lower? Of course it could.. any stock could go lower, but that is not the point. As a growth-oriented investor you have to be ready to take on some pain (stock price declines) from time to time when you are chasing after the high double-digit annual growth. Basically, this is the price you have to pay for owning these names. However, with the proper risk-management and portfolio positioning, this short-term speed bump could prove to be a phenomenal opportunity for generating outstanding profits in the months ahead.

Furthermore, we believe that the new $1.9 trillion stimulus package accepted in the US, will inject a lot of liquidity into the market, which will be a great short-term positive for the equity market. We expect most of the big tech names as well as other market favorites to restore their favorable image among traders and investors in the coming weeks, thus we anticipate that the XLK, XLY will be some of the best performing US sector ETFs in May. However, it is important to note that the loose monetary policy with artificially low interest rates and constant money printing is a net negative for the US dollar in the short term. Thus, we are bullish on Emerging markets, in the next 2-4 months as most of the emerging market economies have US dollar denominated debts. If the US dollar continues to weaken that would make it easier for some of these emerging economies to repay their debts. However, as we continue to see the US economy recovering and we move pass the global pandemic the Federal reserve will be forced to raise the benchmark interest rates in the US, which will end up boosting the dollar and could result in an Emerging market debt crisis in 6-12 months. This is the main reason why we decided to include the EEMiShares MSCI Emerging Markets ETF in one of our ETF Correlation Analyses for the month of May.

We believe that the stock market in the US currently holds a lot of intrinsic risks – COVID-19 mutations and resurgence of new cases, the newly formed office in DC, the economic recovery, the post-Brexit economic reality for the UK and EU etc. – and that we could be in for a sideways and choppy price action in the coming months. However, our analysis shows that the winners would most likely continue to win in the stock market. NIO Inc., has definitely been one of the biggest winners in terms of stock price appreciation throughout the last 12 months, thus we are strongly bullish on NIO’s stock in both the short and long term. Additionally, we are seeing NIO as a great way of playing the major EV boom that is currently happening in the largest EV market in the world – China. The most recent price corrections should be treated as a great opportunity to buy this strong performing stock at a remarkable discount, which would in turn give every investor a chance to maximize his profits to the upside. Moreover, some of the technical indicators that we are monitoring closely on a daily basis (50 DMA, 100 DMA, Bollinger Bands, RSI etc.) have already retraced from their overbought conditions and are now steadily pushing higher, thus signaling that the uptrend might be returning pretty soon. In addition to that, it is important to note the fact that the EEM ETF and the Technology sector as a whole would continue to attract a lot of the investors’ attention moving forward, as the products and services that these tech companies offer are at the forefront of the 4th Industrial revolution or in other words the Digital and Electronic Age . This makes us optimistic for the future performance of NIO as a meaningful part of the ETFs structure. Our analysis shows that as a result of the great leadership performance by the senior management of the company, the strong government support, the large number of growth-related initiatives and new models will be able to allow the stock to hold its ground better than some of the other stocks out there in the event of a correction, and it would also significantly outperform the broader market once the uptrend resumes.

Acknowledging the fact that we are in a position to buy the stock at a 45% discount from the all-time high levels, we would like to point out that buying at these levels would be suitable for both risk-oriented and risk-averse investors. Thus, we are currently looking at the $35-40 range as a great accumulation zone for the stock. Our take profit levels in the coming months are going to be $70 and $85 respectively.

General Electric (GE)

The General Electric Company (GE) is an American multinational company. For more than 125 years, GE has invented the future of industry. Today, GE is best known for its work in the Power, Renewable Energy, Aviation and Healthcare industries.

The company proud itself in rising to the challenge of building a world that works.

Throughout the years, GE has pioneered technologies that have spurred world-transforming changes and improved the lives of billions.

GE brings to market innovative solutions that deliver essential energy, healthcare and transportation infrastructure. The company works with the highest integrity, compliance culture and respect for human rights while also reducing the impact of its technology and environmental footprint.

GE is committed to tackling the world’s biggest challenges and believes that climate change is one of the most pressing issues we face today. GE is strategically focused on playing an essential role in helping achieve the global energy transition and building decarbonization solutions for a world that works, and we are uniquely positioned to do so.

One-third of the world’s energy is created by GE, 90% of power transmission utilities worldwide are equipped with GE’s technology and 40% of the world’s energy is managed by GE’s software. The world’s largest installed base of nearly 38,000 commercial aircraft engines is powered by GE and its partners.

As a result of its socially responsible and environmentally friendly practices, the company holds a very high ESG rating, which will continue to bring a lot of investors to the company and respectively the stock.

Current position – Financial Performance & Future Growth Prospects

General Electric has focused a lot of its efforts in recent years on restructuring its product portfolio and expanding into the digital space, which is expected to help the company accelerate its growth momentum in the coming quarters. One of the big hurdles that GE had and to a certain extent still has in front of itself is the highly leveraged balance sheet, but the company has taken the right steps to address and fix these issues and hopes to do so in the coming quarters. When COVID-19 hit the global economy and all airlines seized operations, their air-fleets were grounded and the orders for GE’s engines and turbines were essentially non-existent GE had to take on and also issue more debt in order to get through that difficult, which affected the balance sheet negatively. However, now with the global vaccination program underway and the virus seemingly under control, the prospects ahead of GE are looking much better.

As we mentioned above, GE began implementing its business portfolio-restructuring program as part of the efforts to become a high-tech industrial company. The program was initiated back in the summer of 2018 and as per the program, GE’s core businesses will be Power, Aviation and Renewable Energy, while it will gradually exit all other businesses. This segmentation will help General Electric to focus more on its core businesses, the better use of capital, deleveraging and others.

Since the beginning of the year, General Electric’s stock has gained 14.6% compared with the industry’s growth of 10.9%. The company also delivered a better than expected Q1, 2021, surpassing estimates by 50% and also growing 50% from Q1, 2020. Most importantly, GE maintained its 2021 adjusted earnings projection at 15-25 cents per share. Moving forward we believe that all of the restructuring and deleveraging efforts that the company is putting in together will end up boosting both the GE’s business as well as the stock price. There was also a $6 billion asset disposition in GE Capital in Q1, 2021. Assets (from continuing operations) were $71.7 billion at the end of the first quarter. Also, the company reduced debts by $4 billion in the quarter, which was a major accomplishment. General Electric targets GE Capital’s debt-to-equity to be less than 4X over the long term.

Technical Analysis

By looking at the daily chart, we can see the strong bullish rally that has occurred in the last 5-7 months, prior to which the stock was trading in a very wide sideways channel with a $5-8.50 price range. The stock plummeted with the rest of the market back in March, 2020 as a result of the economic shutdown that COVID-19 caused. However, while the rest of the market quickly recovered and also surpassed its pre pandemic highs, GE was really struggling to get some traction during the March – October period. The main reason for that was the cyclical nature of the stock and the uncertainty at that time as to when would the economy reopen. With vaccines being added to the equation last Fall and the future economic outlook slightly improving, General Electric saw some resurgence in its stock trading volumes. The stock managed to gain enough momentum and finally broke through the $8.50 upper end of the range. Since then, GE’s stock has been on a tear nearly doubling in just few months. The stock posted 52-week highs of $14.42 on March 9th, 2021 after bottoming out at around $5 back in March, 2020. This represented an astonishing 188% gain for the stock in a year. However, the road to the above-mentioned all-time highs was not easy as it was filled with many different hurdles that the bulls had to overcome in order to keep pushing the price higher, including a 7-month long sideways price action. There were few massive 10-15% corrective movements that took place during this strong uptrend, but the uptrend remained intact on all occasions. The stock has continued to attract a lot of investors’ attention as it remains one of the leaders in the Aviation, Power and Alternative Energy sectors. The way that GE has managed to evolve and restructure its business has really turned the company into a company of the future. The stock is now a go-to choice for both small retail and large institutional investors looking to add some cyclical exposure to their portfolios.

We will start buying the stock around the $12-13 support area. Should the price drop further in the short-term, we would be buying even more aggressively at the next strong support at $10-11 where more buying pressure is expected and it would give us a chance to get a better average price on our long positions. Our initial profit-taking target is set at $16, followed by the next target at $17 where we would be fully cashing in our profits.

The stock is currently sitting at $13 per share, which is 7.7% below its 52-week highs of $14.42 per share. We have seen that the stock has continued to find a lot of buying interest around its 50 DMA line, which is a very good sign for the bulls. The confluence of the horizontal, diagonal and 50 DMA dynamic support lines is currently preventing the price from dropping below the $13 area and is expected to continue to bring a lot of buyers back to the market every time the price drops there. The stock has been rallying strongly ever since we saw the initial round of the rotation from growth into more cyclical and value oriented stocks back in February. The stock has moved up with more than 40% since then, which really shows that there is a lot of momentum behind that move. Recently, the stock reported mixed Q1 financial performance results, surpassing the consensus estimates on the earnings side by 50% but lagging on the revenue front by 2.6%. The stock is quite expensive at the moment for an industrial company trading at a forward P/E of 51.65 and at a ridiculously high PEG ratio of 12.15. So, what we could expect in the short term is a potential correction on the stock, if the $13 support gives away. In that case, buyers will probably start coming in anywhere between the $11-12 level. Furthermore, we should point out that in most cases the market fails to price accurately such restructuring plays as GE’s just because there is way too much speculation in the equation. With that being said, if GE manages to deliver on the bold promises that it’s making this stock could turn into a high-growth name 5 years from now.

Furthermore, we believe that the new $1.9 trillion stimulus package accepted in the US, will inject a lot of liquidity into the market, which will be a great short-term positive for the equity market. We expect most of last year’s market favorites to restore their favorable image among traders and investors in the coming weeks, thus we anticipate that the XLI will be one of the best performing sector ETFs in May.

In addition, President Biden is pushing forward a $2 Trillion infrastructure plan, in order to rebuild, reshape and increase the US industrial, transportation and economic output. This is going to benefit companies like Honeywell tremendously, which will be a great long term growth catalyst for the stock as well.

We believe that the stock market in the US currently holds a lot of intrinsic risks – COVID-19 mutations and potential resurgence of new infections, the new administration in the US, the economic recovery, inflation, the post-Brexit economic reality for the UK and EU etc. – and that we could be in for a sideways and choppy price action in the coming months. However, our analysis shows that the winners would most likely continue to win in the stock market. General Electric, has definitely been one of the biggest winners in terms of stock price appreciation throughout the last 12 months, thus we are strongly bullish on GE’s stock in both the mid and long term, as we believe that the economic landscape will become even more favorable for GE moving forward.

Additionally, we are seeing GE as a great way of playing the reopening of the economy in a rather safe and defensive manner. An intelligent investor should never “bet” against the US government and vice verse an intelligent investor should always look for investing themes that are supported by the current monetary and fiscal policy of the US government and the Federal Reserve. The most recent price corrections should be treated as a great opportunity to buy this strong performing stock at a discount, which would in turn give every investor a chance to maximize his profits to the upside. Moreover, some of the technical indicators that we are monitoring closely on a daily basis (50 DMA, 100 DMA, Bollinger Bands, RSI etc.) have already retraced from their overbought conditions and are now moving higher again, thus signaling that the uptrend might be returning pretty soon. In addition to that, it is important to note the fact that the XLI and the Industrial sector as a whole would continue to attract a lot of the investors’ attention moving forward, as they will be the primary beneficiaries of the huge Infrastructure bill that will be passed in the coming months. This makes us optimistic for the future performance of GE as a meaningful part of the ETFs structure. Our analysis shows that as a result of the great leadership performance by the senior management of the company and the phenomenal restructuring activities at GE with the large number of growth-related initiatives, the stock will be able to hold its ground better than some of the other stocks out there in the event of a correction, and it would also significantly outperform the broader market once the uptrend resumes.

Acknowledging the fact that we are in a position to buy the stock at a 7% discount from 52-week highs , we would like to point out that buying at these levels would be suitable for both risk-oriented and risk-averse investors. Thus, we are currently looking at the $12-13 range as a great accumulation zone for the stock. Our take profit levels in the coming months are going to be $16 and $17 respectively.

Sincerely,

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