2 Stocks Down 39% and 49% to Buy Right Now

Temperatures may be cooling these days, but one thing that remains hot is S&P 500. Since the beginning of the year, it has risen by 18% to the delight of investors.

But some stocks have moved in the other direction. Take Chinese electric vehicle (EV) stocks. Nope (NO -2.22%) and Li Auto (LI 1.27%)for example. Since the start of the year, these two stocks have given investors little to celebrate.

This certainly doesn’t mean they should be written off, though. Let’s see why two Fool.com contributors think these stocks may stop going upside down and go higher in the coming months.

Breaking production records and increasing margins

Howard Smith (Nio): Investors in Chinese electric vehicle maker Nio have long been waiting to see green shoots that indicate the company is becoming a sustainably successful global electric vehicle maker. Those green shoots may have sprouted in Nio’s Q2 report.

Nio shares are down about 40% so far in 2024. But those returns were much worse just a month ago. The stock rose as the company reported strong monthly vehicle deliveries and a better-than-expected quarterly financial report.

The good news started with consistently breaking the 20,000 unit delivery threshold for the first time. This helps Nio take market share and more importantly, improve margins. In the second quarter earnings release, Nio CEO William Li said:

In the second quarter of 2024, Nio delivered a record 57,373 premium smart electric vehicles, securing more than 40% of the market share in the battery electric vehicle segment, priced above RMB 300,000 (about US$42,000) in China.

And the company believes that production and delivery can remain consistently strong. Management estimates third-quarter deliveries could reach 63,000 electric vehicles, up nearly 14 percent year-over-year. And that’s after Nio just completed three consecutive months with more than 20,000 electric vehicles delivered for the first time.

Data source: Nio. Chart by author.

Nio is also beating the expectations of analysts who follow the company. Third quarter revenue and delivery guidance are higher for both metrics.

As mentioned, this growth also helps the company by improving its profit margin. Gross profit margin in the second quarter came in at 9.7%, nearly double the first quarter and significantly higher than the 1% reported in the year-ago period.

Nio is working to expand its network of charging and battery exchange stations in China as well. While the company continues to post losses, it ended the second quarter with about $5.7 billion in cash and cash equivalents. Investors are starting to see light at the end of the tunnel. But Nio still remains a very aggressive investment, and any allocation should reflect that.

Li Auto leads the pack in terms of profitability

Scott Levine (Li Car): Although Li Auto stock was moving in the right direction to start the year, management provided an update in late March that prompted the market to pump the brakes on the Chinese EV stock. Revising down its Q1 2024 delivery forecast from 100,000 vehicles to 103,000 vehicles, management stated a new Q1 2024 delivery project of 76,000 vehicles to 78,000 vehicles due to lower order intake.

However, the subsequent selloff in shares appears to have been an overreaction.

Exceeding its revised forecast, Li Auto ended up reporting deliveries of 80,400 in Q1 2024 — less than its original forecast, but still representing a year-over-year increase of 53%. And the increase in vehicle deliveries extended into the second quarter, when it delivered 108,581 vehicles — a 25.5% year-over-year increase. Most recently, the company reported that it delivered 48,122 vehicles in August, a 37.8% increase year over year.

While Li Auto’s success in increasing vehicle deliveries is undeniably important, what really demands recognition is the company’s current success in generating profits. Unlike his peers, Nio and XPengLi Auto is considerably more profitable on a gross profit basis and has achieved profitability on an earnings before interest, tax, depreciation and amortization (EBITDA) basis.

LI Gross Profit Data (Yearly) by YCharts.

It’s certainly still early days for Li Auto, so investors should expect to see continued growth — especially with the company continuing to expand its product line with vehicles like the Li L6, which the company characterizes as a five-seater premium family SUV. With Li Auto shares trading at 8.8 times forward earnings, now looks like a great time to pick up shares without having to pay a premium.

Should you buy these stocks now?

Unlike a decade ago, growth investors looking to hitchhike an electric vehicle stock have many more options, such as Nio and Li Auto. While the market is sour for these two electric vehicle makers through most of 2024, that doesn’t mean their stocks can’t offer some sweet returns in the future. For those interested in the luxury niche of the Chinese electric vehicle market, the Nio is a strong consideration. Those looking for a more conservative option will find Li Auto more compelling with its higher degree of profitability.