Nio stock looks bullish as institutions are buying China again

Today’s market shuns Chinese stocks because the nation is “uninvestable.” However, those who know where to look and what to look for may find some incredible value plays scattered across the Asian powerhouse. There are still several tailwinds for markets to digest. However, they are all building a potentially bullish case for China.

Not all Chinese stocks are created equal. For example, many sectors such as construction and energy stocks will likely remain in the dark due to a lack of enthusiasm. Other sectors, such as consumer discretionary stocks, led by names like Alibaba Group NYSE: CHILD, they could quickly become more popular among foreign investors. Today, the focus is on the electric vehicle space as a tool for a consumer breakthrough.

Leading the pack in that space, made famous by Warren Buffett when he bought it nearly two decades ago, is BYD OTCMKTS: BYDDF, but that title had already had most of its run. It’s time for small-caps No NYSE: NIO be recognized for its explosive growth potential in this rapidly growing area of ​​the Chinese economy. Before we go any further, here’s why you should start looking into China.

The machine in play

Not all investors see China the same way. However, some of Wall Street’s biggest players have viewed domestic stocks as potential pockets of value to squeeze in this upcoming cycle. Whether by intuition or coincidence, these fund managers are riding the tailwinds of the government itself.

In its latest round of stimulus for the nation’s lackluster economic activity, the Chinese government is injecting up to $278 billion in new liquidity and funds into various asset classes offered to the public.

One of the main goals of this stimulus is to spread benefits to the consumer level in an effort to bring inflation back to healthy levels. But they didn’t stop there.

Large companies are no longer allowed to short stocks in China. Furthermore, some names have even been placed under a selling restriction, a plan that serves as a basis of stability for Chinese markets. Michael Burry, Ray Dalio and other fund managers noticed and couldn’t look away.

By buying stocks like Alibaba Group, value investor Michael Burry (yes, the one who defined the 2008 financial crisis) is expressing his bullish, optimistic view for the future of the company and the nation, and he’s not alone.

Ray Dalio, the manager of the world’s largest hedge fund (Bridgewater Associates), quietly bought iShares MSCI China ETF NASDAQ:MCHI as of Q3 2023. While these larger pockets are forced to go with the bigger, more recognizable names, you can focus on smaller ones that offer far more benefits, like Nio.

Why Nio?

Starting from analysts’ outlook, this stock proposes 40% growth in EPS for the next twelve months and a net upside of 112% according to the analysts’ price target of $12.3 per share. However, this is the consensus; some think it could go much higher than that.

How about something much higher? Analysts at Citigroup NYSE:C I think this stock is worth $19.20 per share, which requires a 232% upside to where the stock is trading today. Now, that’s something to write home about, isn’t it?

So, what could lead these analysts to suddenly be so bullish about this EV stock? Well, China got preferential treatment from Chile’s largest lithium miner and reserve holder, Chemical and Mining Society of Chile NYSE: MQ.

While the headline deal was with BYD, the benefits will likely spread to the rest of the industry’s competitors.

According to management, Nio delivered up to 8,132 vehicles in February alone, for a total of 467,781 year to date. The stock trades at just 1.6 times its price-to-sales multiple, so it can be considered a bargain compared to peers like XPeng New York Stock Exchange: XPEVwhich trade at a higher multiple of 2.4x.

Considering the stock is trading at just 37% of its 52-week high price, you now have another reason to believe it could go much higher on the upcoming earnings announcement on March 5. Pay close attention to the number of vehicles actually delivered and management guidance on future deliveries as an indicator of demand flowing into the company’s bottom line.

Before you consider BYD, you’ll want to hear this.

MarketBeat tracks daily Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and BYD wasn’t on the list.

While BYD currently has a “buy” rating among analysts, top analysts believe these five stocks are better buys.

View the five stocks here