Ordinarily, I would tell someone who would buy a stock that increased by more than 1,000% since the start of the year that they should seek “professional help†from a therapist. I am prepared, though, to throw caution to the wind when it comes to Chinese electric vehicle maker Nio (NASDAQ:NIO). Yes, for me, Nio stock is one of those rare exceptions.
Like most people, I am a sucker for an underdog story, and few companies defied the odds quite like NIO.Â
What a Comeback !!!
Last year, Nio stock traded at $1.39 as the company faced bankruptcy. It got a financial bailout valued at about $1 billion from “state-owned entities†based in Hefei, China, where it makes its vehicles. Chinese behemoths Baidu (NASDAQ:BIDU) and Tencent (OTCMKTS:TCEHY) are among NIO’s investors. The Chinese Communist Party likely approved the deal.
Unlike most of the hundreds of EV startups in China, Nio produces and sells vehicles such as the ES6, which the BBC’s “Top Gear†show said in a recent review performed surprisingly well.
“The interior is comfortable, spacious, and feels well-made, the infotainment looks and feels slick and the powertrain is smooth, quiet and makes this 2,345kg car properly quick,†the program’s website says.Â
Gallery: 7 Stocks To Sell For A Fresh Start On New Year’s Day (InvestorPlace)
With Santa’s sleigh bells ringing in the (social) distance, it’s time to take a hard, clear-eyed look at our portfolios. Most of us have stocks to sell. And there’s no time like the start of a new year to tidy up. Considering that 2020 was a bummer in so many ways, you’re forgiven for eagerly looking ahead. The arrival of vaccines to combat the novel coronavirus certainly helps. After all, we’ve spent much of the past year suffering through a wholly inadequate response to the pandemic. Luckily for investors, the stock market took its Covid-19 licks and kept on ticking. The sell-off in March was tough. But the markets was resilient and many stocks rebounded. On the flip side, there is continued — and understandable — weakness in some sectors, particularly oil and gas, retail and travel. A segment’s weakness resulting from the pandemic is not a reason, by itself, to sell. Everyone is hoping that 2021 will see Covid-19 brought under control. When that happens, many troubled segments can begin their recoveries.
So, in the spirit of the season, here are seven stocks to clear for the new year: iBio (NYSEAMERICAN:IBIO) Luckin Coffee (OTCMKTS:LKNCY) Wells Fargo (NYSE:WFC) Hertz (OCTMKTS:HTZGQ) Intel (NASDAQ:INTC) Harley Davidson (NYSE:HOG) Electrameccanica (NASDAQ:SOLO) Reasons to sell a stock are varied, including a company’s mistakes, a hostile economy or simply a desire to invest elsewhere.
Stocks to Sell: iBio (IBIO)
Biotech play iBio popped on investment radar screens because of Covid-19. As investors looked for long-shot alternatives in the quest for a coronavirus vaccine, iBio garnered a lot of attention. No newbie in the biotechnology world, this company actually has ties to a Defense Department program preparing for well, a pandemic. Now I can’t explain why the feds didn’t go back to iBio when the Covid-19 was discovered. I also can’t explain making mask-wearing a politically divisive act, but that’s what happened. Anyway, for many years iBio was a contract manufacturer for drug makers using its unique FastPharming system. With Covid-19, this unique technology sparked hope that iBio might break through the vaccine crowd and score a win. The company appears to have now turned its back on its previous revenue source as a contract manufacturer. iBio earned a place on this list of stocks to sell with its lack of progress on a vaccine and its questionable pivot away from manufacturing.
Luckin Coffee (LKNCY)
There’s nothing like a nice dose of fraud with your caffeine fix. That’s what China’s Luckin Coffee served investors this year. Its menu included accounting fiction totaling more than $300 million. This saga didn’t have to end this way. Luckin tried to take coffee drinkers in China by storm with a streamlined process to order and pay, as well as prices below those charged by U.S. coffee giant Starbucks (NYSE:SBUX). Unfortunately for investors, Luckin’s executives lied and faked the books. Federal regulators in China issued a relatively small fine for the misbehavior and Luckin was kicked out of the Nasdaq to over-the-counter trading. It’s still in business, but frankly, it doesn’t deserve to be. This notorious company is the poster child for stocks to sell.
This national megabank won its “stock to sell” status when it prioritized profits over integrity. It became just too old fashioned to treat customers with honor and honesty. I’m sure you remember. Employees pressed to meet corporate sales quotas opened fake accounts without their customers’ knowledge and approval. Of course the numbers looked good for a time, but eventually the scheme became public knowledge and executives’ excuses were lackluster. Bank regulators still look at WFC with a jaundiced eye and are keeping the bank on a justifiably tight leash. In the wake of Wells Fargo’s scandal and what he called “big mistakes,†longtime stock holder Warren Buffett has been selling his massive stake in the company. If that continues, observers say Buffett could soon be rid of the last of his WFC shares. As with Luckin Coffee, trust matters in investments and Wells Fargo hasn’t shown it can be trusted. Buffett’s lead should be followed in this case.
Hertz (HTZGQ)
Hopefully, you no longer hold shares of this once iconic and now bankrupt car rental company. If you do, sell now while “investors†who like trading zombie stocks are still gullible enough to buy your stake. Otherwise, you likely will end up with nothing. Over the company’s many years in business, Hertz was bought and sold numerous times. Its list of owners includes auto companies, airlines and equity firms. The company seemed to thrive even during weak periods in the travel industry — at least, until the Covid-19 pandemic, that is. Burdened by debt and the near-immediate halt to demand for rented cars, Hertz collapsed.
The company seeks to restructure in bankruptcy court, but its current stock is expected to end up worthless. Trading around $1.60 per share, that destination seems around the corner. In fact, Hertz stock is a dead end.
Intel (INTC)
Intel is a historic name in the chip world. But unfortunately, Intel is on our list of stocks to sell because it falls short when compared to computer chip pacesetters Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD). These fierce competitors are beating Intel in both products and performance. The main strength Intel wields is its ability to manufacture its chips, while Nvidia and AMD rely on a well-established third party manufacturer. Will that be enough? Maybe. But at this point, there’s no need to take the chance. There are better investments in this field.
Harley Davidson (HOG)
The trademarked rumble of Harley Davidson is well known, but the company’s customer growth is stagnant, which spells trouble for holders of HOG stock. There is a limited market for motorcycles. This is an expensive and somewhat risky hobby. And there’s just no way to avoid the impact of the passage of time on the men and women who favor this American brand. It certainly didn’t help that President Donald Trump’s misguided trade wars with China also harmed the company.
The result is HOG is one of our stocks to sell as the year ends. Harley Davidson is trying to “streamline†to better operate in a difficult environment. But at the end of the day, motorcycle enthusiasts have many options from which to choose and this brand is being squeezed.
Electrameccanica (SOLO)
The last entry on our list of stocks to sell is Electrameccanica, a Canadian company developing battery-powered motorcycles dressed like tiny cars. This stock is getting attention from investors interested in the emerging electric-vehicle industry. In addition to EV pioneer Tesla (NASDAQ:TSLA) and most of the legacy automakers, several small start-ups are vying in this segment. But it will be tough to survive. Innovation and competition will benefit the industry, but consumer wants and economic realities will cull the weakest. Electrameccanica’s entry is the Solo, a three-wheeler with a cab. It resembles a very small car from the front and looks strange from the rear. The company says it is designed for crowded urban spaces, which means a limited niche at best. The Solo is a novel idea, but so was the Smart car. Investors have many choices among EV companies, but SOLO is one to pass. On the date of publication, Larry Sullivan did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.Larry Sullivan is a veteran journalist in Florida who has covered banking and finance for several years. He is a former investing editor at U.S. News & World Report in Washington D.C.
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8/8 SLIDES
Sure, money-losing Nio’s valuation is ridiculous, but bulls can ignore that for now.
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Nio Stock’s Insane Valuation
With a market capitalization of around $75 billion, NIO is now worth as much as the combined capitalizations of Ford (NYSE:F) ($35 billion) and Fiat Chrysler (NYSE:FCAU) ($36 billion), companies with histories dating more than a century. General Motors (NYSE:GM), founded in 1908, is valued at nearly $60 billion. Only three other automakers — Tesla (NASDAQ:TSLA), Toyota Motor (NYSE:TM), and Volkswagen (OTCMKTS:VLKAF), are valued higher than Nio.
Wall Street analysts believe NIO shares have run out of gas. Their average price target on NIO stock is $40.51, roughly 13% below where it currently trades. I am not ready to throw in the towel on NIO stock just yet. NIO is a useful tool for the Chinese Communist Party, under international pressure to crack down on pollutants linked to global warming.
Subsidies
“Originally, the Chinese plan had been to remove NEV subsidies by the end of 2020. However, in March of this year, following the post-Covid-19 economic recession, the decision was made to extend them,†according to CleanTechnica. “The revision now includes consumers who buy new electric vehicles through 2022 and also contains provisions for tax exemptions on purchases for 2 years.â€
China aims to have alternative fuel vehicles account for 20% of all automobile sales by 2025, a huge jump from their current level of 5%. The Communist Party would prefer that a local company like Nio plays a prominent part in solving the vexing problem of air pollution instead of a foreigner. Nio is too important for China’s image to allow to fail.
So, in conclusion, I think NIO stock will trade higher and defy the naysayers. Unfortunately, like all bubbles, this one will burst though it may take a year or two for it to happen. It’s best to wait for a 10 to 20 percent pullback before pulling the trigger. Anyone who buys NIO shares, though, better brace themselves for a bumpy ride.
On the date of publication, Jonathan Berr did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Jonathan Berr is an award-winning freelance journalist who has focused on business news since 1997. He’s luckier with his investments than his beloved yet underachieving Philadelphia sports teams.Â
