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NIO
caught an upgrade Monday. That puts stock in the Chinese electric-vehicle maker in rare air. It’s one of only seven widely covered large-cap stocks that have overwhelming support on Wall Street, but where shares are underperforming the market in recent months.
UBS analyst Paul Gong upgraded NIO (ticker: NIO) stock to Buy from Hold. His price target, however, dropped to $32 down from $42. The upgrade and price target cut reflect the recent trading reality. Shares are down about 31% year to date and off about 60% from their July 52-week high of more than $55 a share.
The starting point for NIO’s shares might be why it is getting a big bounce Monday. Shares are up about 5% in early trading. The
S&P 500
was up 0.4% and the
Dow Jones Industrial Average
was down 0.1%
Gong pointed out that sales growth slowed with an aging vehicle lineup, but that growth should accelerate with new model introductions such as the ET5 midsize sedan.
NIO delivered about 51,000 vehicles over the past six months, up about 10% from the roughly 46,000 delivered in the prior six months. Growth is good, but NIO deliveries grew almost 25% compared with the six months prior to the 46,000 figure.
Gong isn’t alone in his bullish view. With the upgrade, more than 90% of analysts covering the stock rate shares Buy. There are only six other large, widely covered stocks with that level of support that have also underperformed the market over the past six months.
Along with NIO, the list Barron’s identified includes peer EV maker
XPeng
(XPEV), software providers
Twilio
(TWLO),
CrowdStrike
(CRWD), and
HubSpot
(HUBS), payment giant
Visa
(V), and healthcare services provider
IQVIA
(IQV).
Growth is one thing all those seem to have in common. The average expected sales growth in 2022 compared with 2021 is about 50%. The slowest growing top line is IQVIA. It is expected to grow sales about 7%. XPeng is expected to grow sales about 100%. NIO’s 2022 projected sales growth is about 75%.
Growth stocks have been hit by inflation and the rising interest rates that inflation induces. Higher interest rates hurt growth stock valuation more than others because growth companies generate most of their earnings and cash flow far in the future. Those things are worth less discounted back to today’s dollars as rates rise.
Despite rising rates, Wall Street still loves these stocks. The average Buy-rating ratio for large-cap stocks is about 58%. Time will tell if analysts are right about NIO’s shares or shares of the other six, but the situation is, at minimum, something investors should consider.
Write to Al Root at allen.root@dowjones.com
Read More: NIO Upgraded, Putting Shares in Rarefied Territory With 6 Other Stocks