Is NIO Stock A Buy or Sell?

At Insider Monkey, we pore over the filings of nearly 887 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of December 31st. In this article, we will use that wealth of knowledge to determine whether or not NIO Limited (NYSE:NIO) makes for a good investment right now.

Is NIO stock a buy? Prominent investors were taking a bearish view. The number of long hedge fund positions were cut by 1 in recent months. NIO Limited (NYSE:NIO) was in 34 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 35. Our calculations also showed that NIO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 124 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David Siegel of Two Sigma Advisors

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we’re going to go over the recent hedge fund action regarding NIO Limited (NYSE:NIO).

Do Hedge Funds Think NIO Is A Good Stock To Buy Now?

Heading into the first quarter of 2021, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from one quarter earlier. On the other hand, there were a total of 16 hedge funds with a bullish position in NIO a year ago. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Among these funds, D E Shaw held the most valuable stake in NIO Limited (NYSE:NIO), which was worth $751.4 million at the end of the fourth quarter. On the second spot was LMR Partners which amassed $337.4 million worth of shares. Two Sigma Advisors, Renaissance Technologies, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Long Corridor Asset Management allocated the biggest weight to NIO Limited (NYSE:NIO), around 47.19% of its 13F portfolio. Ovata Capital Management is also relatively very bullish on the stock, earmarking 13.26 percent of its 13F equity portfolio to NIO.

Due to the fact that NIO Limited (NYSE:NIO) has experienced bearish sentiment from hedge fund managers, it’s safe to say that there exists a select few money managers that elected to cut their positions entirely by the end of the fourth quarter. It’s worth mentioning that Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners dumped the biggest investment of all the hedgies watched by Insider Monkey, valued at about $153.7 million in stock. Lei Zhang’s fund, Hillhouse Capital Management, also said goodbye to its stock, about $51.2 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 1 funds by the end of the fourth quarter.

Let’s check out hedge fund activity in other stocks similar to NIO Limited (NYSE:NIO). These stocks are Automatic Data Processing, Inc. (NASDAQ:ADP), Cigna Corporation (NYSE:CI), Snap Inc. (NYSE:SNAP), Baidu, Inc. (NASDAQ:BIDU), Prologis Inc (NYSE:PLD), Colgate-Palmolive Company (NYSE:CL), and Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR). This group of stocks’ market values are closest to NIO’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 46.4 hedge funds with bullish positions and the average amount invested in these stocks was $2628 million. That figure was $2634 million in NIO’s case. Snap Inc. (NYSE:SNAP) is the most popular stock in this table. On the other hand Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR) is the least popular one with only 24 bullish hedge fund positions. NIO Limited (NYSE:NIO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NIO is 46. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 7.9% in 2021 through April 1st and surpassed the market again by 0.4 percentage points. Unfortunately NIO wasn’t nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); NIO investors were disappointed as the stock returned -18.6% since the end of December (through 4/1) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

Disclosure: None. This article was originally published at Insider Monkey.