Analysts are enthusiastic about XPeng stock

Today, most investors believe that investing in Chinese stocks is an almost impossible task. Some believe the nation is “uninvestable.” However, some mega investors have started to find value in some of the country’s stocks; guys like Ray Dalio and Michael Burry (the guy who called the 2008 financial crisis) started buying up the biggest blue-chip names in the tech and consumer discretionary space.

While Dalio – in perfect macro-investor style – decided to dive into a broader context iShares MSCI China ETF NASDAQ:MCHI To expose his fund to a comprehensive list of stocks in the region, Michael Burry initiated a position of more than $10 million in more specific names. Divided between Alibaba Group NYSE: CHILD AND JD.com NASDAQ:JDBurry is betting on a more significant recovery in the country’s stocks.

Stock picking in the midst of a broader index turnaround can pay off big. That’s why you can focus on auto stocks in China today. Traders and analysts are looking specifically XPeng New York Stock Exchange: XPEV stocks as a positive outlier that will likely amplify the effects of this next bull run. More on why later, for now, focus on the big picture.

Here’s the attraction

Capital held by major investors, hedge funds and investment banks or similar asset managers Black rock NYSE: BLACK they typically rotate to locations where a more significant return is offered. This is as long as this does not result in an additional level of financial risk (emphasis on the financial).

Since these stocks don’t represent an increase in financial risk, buying them wasn’t as bad as most of the market thought. Yes, there is greater geopolitical risk as tensions between China and the US are high, but that doesn’t take away from the fact that you can find some wonderful assets at discounted prices.

Since the current spread between the yield offered by the CSI 300 Index (China’s version of the S&P 500) is today up to 5.5%, investors will ultimately not be able to ignore the attraction, considering that bond yields Chinese ten-year bonds are at 2.5%. Today. A similar thing happened in US markets in 2020; here’s what happened.

In 2020, the S&P 500 paid out as much as 2.5% in dividends (the highest level since the 2008 financial crisis), while the U.S. 10-year yield paid less than 1.0%. When stock returns outpace bond returns, money tends to flow aggressively into stocks, chasing only one thing: growth.

Now that investors are willing to take on the risks associated with exposure to China’s growth, it may be time to examine some of the best outliers within this great inflection point. So why, of all places, would you start looking into the automotive space in the region?

The stimulus is coming

The Chinese government has pushed the support line for its financial markets higher to avoid a further sell-off. In its latest round of support, the government injected up to $278 billion into its economy, giving banks more flexibility in their reserve requirements.

According to the news, any other country and the stock market would have surpassed multi-year highs, which only reflects the exaggerated pessimism that dominates the region. But what does all this mean for XPeng? Easy financing and cheap money push people to buy one thing as a status symbol: cars.

But what about the other guys on the market? Popular names like No NYSE: NIO AND Li Auto NASDAQ: LI they have a better track record of attracting retail investors. Well, professionals might be eager for a change of scenery, where XPeng stands out.

While the automotive industry is expected to grow its earnings per share at an average rate of 12.5%, analysts believe that XPeng will see growth of 56.0% over the next twelve months. However, the market is telling you something that expresses its optimism compared to other competitors.

From their price targets, a consensus of $18.7 will reflect a 106.0% upside in the stock from where it trades today. When it comes to Nio and Li Auto, the way the markets value the companies provides all the evidence needed to justify the price targets in XPeng.

Keep in mind that the analysts of Morgan Stanley NYSE:MS they also raised their targets to $25.4 per share, which is a much bigger upside than 167.0%!

Since these are younger, faster-growing companies, you can’t rely on typical price-to-earnings ratios to get a sense of valuation, but rather form your own opinion on price-to-sales ratios. XPeng trades at a P/S multiple of 2.3x, higher than both Nio and Li.

Nio is about a 40.0% discount to XPeng at its 1.4x P/S multiple, as is Li Auto at its 30.4% discount to its 1.6x P/S valuation. brings.

The saying “It has to be expensive for a reason” holds true in this comparison, and now you can spot what that reason might be: Money is coming to market quickly, and XPeng is ripe for the taking.

Before you consider Morgan Stanley, you’ll want to hear this.

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