Nio’s (NYSE:NIO) latest drop in price saw NIO stock fall from a Feb. 10 high of $64.60 to a May 13 low of $30.71 before recovering some of those losses over the second half of the month and into June.
A Nio (NIO) sign and logo on a tan concrete building.
Source: Sundry Photography / Shutterstock.com
That’s a 52% correction from peak to valley.
On June 2, Nio announced its deliveries for May. It delivered 6,711 electric vehicles (EVs) in May, 95% higher than May 2020. However, its May deliveries were 5.5% lower than in April. Year-to-date, Nio’s delivered 33,873 EVs, 225% higher than a year ago through the end of May.
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On balance, Nio is having an excellent year. Does this make it a best buy?
Maybe. Maybe not.
NIO Stock Was Too Low
On May 13, InvestorPlace published my latest article about Nio. I suggested that the industry-wide chip shortage provided investors with a buying opportunity.
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“[I]f you’ve never owned the stock, but believe the electrification of passenger vehicles is the real deal, now would be an excellent time to consider taking a position,” I wrote.
I couldn’t get my timing any better if I tried. In the three weeks since, it’s regained almost 30% of its losses, trading around $42.12 as I write this. Add in the exceptional deliveries report for May — yes, deliveries were down 5.5%, but that had to do with the chip shortage setting back production for several days — and it seems all but certain to continue its run well into June.
“[T]he Company will be able to accelerate the delivery in June to make up for the delays from May. The company maintains and reiterates the delivery guidance of 21,000 to 22,000 vehicles in the second quarter of 2021,” stated Nio’s June 1 press release.
In the second quarter last year, Nio delivered 10,331 vehicles. At the time, the company’s third vehicle, the EC6, had yet to make it to market. In May, it delivered 2,282 EC6’s.
From where I sat in May, NIO stock just seemed too darn low. To make the next 30% leg up to $55 or $60 will take a lot more buy-in from investors.
So, if you missed the boat in May, I’ve got a possible alternative to Nio stock that might not be quite as risky. I’ll explain what I mean in the next part.
Care to Guess What It Is?
On several occasions in 2021, I’ve had the opportunity to recommend the First Trust NASDAQ Clean Energy ETF (NASDAQ:QCLN).
In February, I suggested QCLN would make an excellent alternative to Nio, which was one of 2020’s best-performing stocks.
“Since it announced the $1 billion in funding, Nio stock is up 1,400%, and it’s got a market capitalization of $86.6 billion, almost double Ford (NYSE:F),” I wrote on Feb. 24. “If you still want to get in on the Nio action but fear you’ve missed the boat on its stock appreciation, First Trust’s QCLN clean energy ETF gives you excellent exposure to the electric vehicle (EV) manufacturer with a weighting of 6.7% of the fund’s $3.3 billion in total net assets.”
Today, Nio is the ETF’s number one holding with a weighting of 8.37% and assets of nearly $2.5 billion. Investors have abandoned clean energy so far in 2021, and it shows with QCLN’s total return of -10.7% as of June 4.
The second time I mentioned QCLN was in the same breath as my June 1 article recommending Xpeng (NYSE:XPEV) in the mid to high $20s at some point during the summer. My rationale was that institutional investors would load back into clean energy stocks later in the year.
However, if you didn’t want the company specific-risk of XPEV, QCLN would allow you to at least gain exposure to it and the rest of the EV industry for a reasonable 0.6% management fee.
The Bottom Line
Don’t get me wrong. I believe that if you buy Nio at $41 today and hold for the next 2-3 years, barring a major correction in the overall markets, which could definitely happen, I’m confident you’ll make money on your investment.
That said, I’m always trying to present readers with options. In this case, it’s QCLN.
I do so knowing that the ETF has had a bit of a cooldown in 2021 after 2020’s total return of 184%, which followed a 43% return in 2019.
The contrarian/value investor in me says wait to see if you can pick it up below $50 — it last traded at $50 in November 2020 — but if you hold for 2-3 years, you ought to be okay in the low $60s.
Or, in a tip of the cap to my February article, you buy 33% in QCLN, 33% in Nio, and 33% in the Invesco S&P 500 Equal Weight ETF (NYSEARCA:RSP). Bob’s your uncle; you’ve got a ready-made three-stock portfolio that will do well over the long haul.
On the date of publication, Will Ashworth 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.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
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