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Should I Buy NIO Inc. (NIO)?

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·6 min read
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Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 900 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is NIO Inc. (NYSE:NIO), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Is NIO Inc. (NYSE:NIO) a good stock to buy now? The smart money was buying. The number of bullish hedge fund bets moved up by 6 lately. NIO Inc. (NYSE:NIO) was in 34 hedge funds' portfolios at the end of the second quarter of 2021. 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 Q2 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

John Overdeck of Two Sigma
John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind let's check out the key hedge fund action encompassing NIO Inc. (NYSE:NIO).

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

At the end of June, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 21% from the previous quarter. On the other hand, there were a total of 30 hedge funds with a bullish position in NIO a year ago. With the smart money's capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

Is NIO A Good Stock To Buy?
Is NIO A Good Stock To Buy?

Of the funds tracked by Insider Monkey, D E Shaw, managed by D. E. Shaw, holds the number one position in NIO Inc. (NYSE:NIO). D E Shaw has a $513.1 million position in the stock, comprising 0.4% of its 13F portfolio. Coming in second is Citadel Investment Group, led by Ken Griffin, holding a $452.1 million call position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other peers with similar optimism consist of Renaissance Technologies, John Overdeck and David Siegel's Two Sigma Advisors and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position Long Corridor Asset Management allocated the biggest weight to NIO Inc. (NYSE:NIO), around 21.94% of its 13F portfolio. Aubrey Capital Management is also relatively very bullish on the stock, designating 7.64 percent of its 13F equity portfolio to NIO.

Consequently, some big names were leading the bulls' herd. Renaissance Technologies, assembled the most valuable position in NIO Inc. (NYSE:NIO). Renaissance Technologies had $281.6 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also initiated a $25.6 million position during the quarter. The following funds were also among the new NIO investors: Israel Englander's Millennium Management, Philip Best's Quaero Capital, and Michael Gelband's ExodusPoint Capital.

Let's now review hedge fund activity in other stocks similar to NIO Inc. (NYSE:NIO). These stocks are Gilead Sciences, Inc. (NASDAQ:GILD), General Motors Company (NYSE:GM), U.S. Bancorp (NYSE:USB), Automatic Data Processing (NASDAQ:ADP), Crown Castle International Corp. (NYSE:CCI), ConocoPhillips (NYSE:COP), and The TJX Companies, Inc. (NYSE:TJX). This group of stocks' market caps match NIO's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GILD,54,1732734,-11 GM,86,7414862,0 USB,41,8305634,-2 ADP,41,3018791,-1 CCI,42,2093903,-1 COP,50,1158596,-1 TJX,56,2387336,-7 Average,52.9,3730265,-3.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 52.9 hedge funds with bullish positions and the average amount invested in these stocks was $3730 million. That figure was $2067 million in NIO's case. General Motors Company (NYSE:GM) is the most popular stock in this table. On the other hand U.S. Bancorp (NYSE:USB) is the least popular one with only 41 bullish hedge fund positions. Compared to these stocks NIO Inc. (NYSE:NIO) is even less popular than USB. Our overall hedge fund sentiment score for NIO is 39.1. 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. Hedge funds dodged a bullet by taking a bearish stance towards NIO. Our calculations showed that the top 5 most popular hedge fund stocks returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 21.8% in 2021 through October 11th but managed to beat the market again by 4.4 percentage points. Unfortunately NIO wasn't nearly as popular as these 5 stocks (hedge fund sentiment was very bearish); NIO investors were disappointed as the stock returned -33% since the end of the second quarter (through 10/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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