*This article is reproduced from the autocarweekly public account.
Author: Financial Street Lao Li
The Shanghai Auto Show was in full swing, and earlier, companies in the automotive industry chain successively released their 2020 annual reports.
In 2020, funds made a lot of money, and the annual return rate of funds heavily invested in new energy vehicles exceeded 60%, which can only be considered qualified. The leading funds even exceeded 100%. It should be noted that Buffett’s annualized return rate during the peak period from 1976 to 1998 was only 30.4%.
When the wind blows, even pigs can fly. We often say “funds eat meat, and retail investors drink soup”, but in reality, many retail investors haven’t even been able to drink soup. According to data released by Dongfang Securities, in the volatile market in the fourth quarter of 2020 and the spring of 2021, less than 7% of retail investors had a return rate of more than 20%. Many people either made small profits and couldn’t hold on, or cut their losses and left….
For the past two years, Lao Li has been engaged in market investment in intelligent electric vehicles. It can be stated clearly that investment conclusions without analysis frameworks are fraudulent. It is better to teach people how to fish than to give them fish. In this article, Lao Li will tell friends about the analysis framework and talk about how retail investors should buy intelligent electric vehicle stocks, and which companies are worth paying attention to in 2021?
How can retail investors pulse the secondary market?
Many fund managers regard the secondary market as a walled city, and only God’s perspective can see the market fluctuations clearly.
Who has the god’s perspective of the secondary market? Unfortunately, the answer is no one. Whether it is retail investors, securities firms, public funds or other institutions, everyone is working hard to improve themselves and get as close as possible to God’s perspective. Among them, public funds and securities firms stand higher than retail investors and can see the market more thoroughly and in more detail. How to approach God’s perspective? The method is very simple: to understand the market, the industry, and the company. However, the simplest things are often the hardest.
From the market to the industry, and then to the company, this is a top-down investment perspective. In the road of Chinese stock market from value speculation to value investment, many institutions regard this top-down research method as a model with repeated successful experiences. In fact, many individual investors may have heard of this method, but they may apply different strategies when investing:
-
Find friends to recommend stocks, but almost never ask when to buy, why to buy, when to sell, and why to sell;
-
Watch industry media talk about good corporate trends, and then appear the deviation of the basic face and stock price after buying;
-
Listen to insider information and hope to push up the price and break the board, but often get trapped.To be frank, investing in the secondary market through these methods can only rely on luck. If you entered the market in the second half of 2018, you might have experienced losses in almost any investment, because even the industries and companies with good fundamentals would find it hard to perform well in a bearish market. Some might argue that the latter half of 2018 was an exception, but let me tell you that even during the bull market of 2020, there were still periods of downturns. If individual investors do not choose to hold their positions for a long term, they will inevitably be affected by market trends.
Below, I will introduce several methods for judging market trends for your reference and discussion.
To have a rough understanding of the market trends on a quarterly, monthly or weekly basis, you can obtain relevant information from the official account of securities brokers or public funds. If you find it troublesome, you can spend a few minutes each day observing the performance of the peripheral markets (such as the U.S. stock market, Hong Kong stock market, and European stock market). A good performance in the peripheral markets does not necessarily mean a good performance in A-shares; vice versa, poor performance in the peripheral markets means that the A-share market is unlikely to perform well. Additionally, you can check the inflow of Northbound capital through Eastmoney App, which is a good indicator when Northbound capital is stable.
Some may ask if there are any methods that are more quantifiable. Sure, let me introduce three guidelines to determine market trends.
I. Market Activity Judgement Guideline: Excluding the stocks on the sci-tech innovation board and ST stocks, if the number of stocks hitting their daily price increase limit minus the number of stocks hitting their daily price decrease limit is greater than 50, it indicates that the market activity is strong. If the number is less than 20, it indicates that the market activity is weak. If the number falls in between, it means that the market activity is moderate. When the market activity is strong, you can make some aggressive investments, but when the market activity is weak, you should focus on risk control.
II. Crowd-following Environment Judgement Guideline: Whether there are stocks that have risen for six consecutive days or more or several stocks that hit their daily price increase limit three days in a row in the A-share market determines whether the market has a crowd-following environment. For example, before the Shanghai Auto Show, the stocks related to Huawei, such as BAIC BluePark, Xiaokang Shares, etc., hit their daily price increase limit. Many investors followed the trend and bought these stocks, but they ended up stuck because the overall market sentiment in April was indifferent and these trades were purely speculative.
I do not recommend you follow the herd, because the capital circle has a well-established information and research system, which can predict many events in advance. When a company has any new movements, the capital market is the first to react. When the media reports the news and informs the general public, the capital has already begun to withdraw.In addition, under the pressure of KPI, fund operations are very short-term, and T+1 transactions (buying on the same day and selling on the next day) are not uncommon. At the beginning of the year, GAC released graphene-based batteries. Even though the secondary market knew that the battery expectations were not so ideal, GAC group’s stock still hit the limit up, and then fell. The reason is very simple. The fund just wanted to use this PR to speculate on short-term. If retail investors follow the trend and buy in at this time, they will basically be trapped.
III. Market Attack Judgment Rules: If the daily turnover of the broker sector exceeds 40 billion yuan, it indicates that the market’s attack ability is strong. If it is below 40 billion yuan, the market’s attack strength is average. Everyone can determine the holding time based on this indicator. Of course, if you hold for a long time, you can ignore this rule.
What Lao Li needs to explain is that these three quantitative judgment rules only apply to A shares, not to Hong Kong, Europe, and the US stock markets.
A methodology for industry research, out of respect
When you get to this point, some friends may say, Lao Li, you’ve said so much that it’s useless. The only rule in A-shares is to hold! Don’t believe it? Look at the old lady who spent 50,000 yuan buying stocks in 2008. Now her book value has reached over 5 million. Lao Li wants to say that long-term holding is fundamental, but it is also crucial to choose the right industry. This old lady was lucky. It is said that she bought Changchun High-tech, a leader in the pharmaceutical track. If the old lady had bought Chinese oil, she would have lost at least 70% now…
Another example, in 2020, the A-share market in the pharmaceutical, consumer and technology industries continued for most of the year, while banking, real estate, and insurance basically did not move, which was ridiculed as the “three silly”. In the first quarter of 2021, the A-share market trends were like night and day, with the collective callback of the pharmaceutical, consumer and other track stocks and the overall strength of the pro-cyclical sectors forming a sharp contrast.
In the pro-cyclical sphere, the chemical, non-ferrous and other sectors collectively became active, and even steel stocks under the “carbon neutral” trend had performance opportunities, but the pro-cyclical market is not long-lasting. After the April rebound, track stocks returned to the race track, and this trend will continue in May and June.
Therefore, choosing the right industry is more important than spotting the trend to some extent. Because of KPI, the fund has to digest risks or boost performance through more industry allocations. But for retail investors, choosing the right industry, holding for the long term, and overcoming greed are often the winners.
Some friends may ask, since we are holding for the long term, what industry should we choose? What company should we choose?For the first question, Lao Li directly stated the conclusion that despite the public funds adding holdings in the finance and cyclical industries in the first quarter, the top-performing industries in the secondary market for the last three quarters are still healthcare, consumer goods, and technology. Fortunately, the smart electric vehicle belongs to the technology category and has incorporated the concepts of new energy and intelligence, meaning that choosing smart electric cars is the right choice with respect to the industry.
For the second question, Lao Li introduced a set of research methodology and learning methods, because in the smart electric car industry, there are a large number of listed companies, and research in the industry is essential. Without understanding the industry, it may be challenging to understand news such as the following:
“Taking Agricultural Bank of China’s Huili Industry 4.0, last year’s champion product, as an example, Zhao Yi maintained a foothold in the new energy track while also making some degree of diversified investment in the first quarter’s top ten heavyweights. He replaced the previous high-weighted stocks such as Tongwei Co., Ltd., Xinzhoubang, and Putailai with upstream and downstream stocks from the mechanical and chemical industries such as Applied Materials China, Zoomlion, and Enjie Shares. Of course, for the leading stock in the new energy industry, he still vigorously increased his holdings. For example, in the first quarter, he increased the number of holding shares of Ningde times from 845,600 shares to 1.3023 million shares, and his position proportion increased from the original 7.55% to 8.25%.”
While everyone may have heard of Ningde times, names like Xinzhoubang and Putailai may not be that familiar. Can they be purchased? To solve this problem, you need to understand the industry.
Lao Li also introduced a commonly used industry research methodology, which mainly includes the study of the four chains:
-
Industry chain, as the name suggests, is split according to product structure or industrial division of labor. For example, the central part of the smart electric vehicle industry chain is the entire vehicle, and upstream is power batteries like cathode materials, anode materials, and diaphragms.
-
Value chain, which estimates the pricing of each link in the industry chain, thereby obtaining the value distribution of the industry chain. A panoramic view of the value chain for smart electric vehicles shows that power batteries have the highest value, so they should be focused on.
-
Enterprise chain, investment targets are companies. Power batteries have the highest value, which companies are worth paying attention to? Undoubtedly, the leading company Ningde Times needs attention, and the second is Guoxuan Hi-Tech. With further digging, Yiwu Lida Energy Binding XPeng Motors, and the valuation of the enterprise is getting better, and in the future, Xinyuan will enter, so the enterprise chain is clear.
-
Ecological chain, the industry changes every day, so how to check the relationship between companies and the industry? Therefore, an ecological chain is needed, just like the butterfly effect, to see the actions of ecology.
As an ordinary investor, how to pay attention to these chains? It is effortless. Securities firms have prepared the materials for everyone – research reports. Reading research reports is the fastest way to obtain information. The industry researchers at Tsinghua University, Peking University, and Fudan University read these reports every day. Everyone can download them from platforms such as Eastmoney and Tonghuashun.
What to read in the 2021 Automotive Stock Review? Follow Mr. Li’s Four-Step Learning Method to easily understand lengthy and complicated research reports:
1. Abstract: This is the most essential part of the report, reading which allows you to determine whether it is worth going through the entire document.
2. Research Content: For this part, simply read the first sentence of each paragraph as the researchers structure their content accordingly. Focus on the ones that interest you and skip over the rest.
3. Recommended Stocks: This section is a must-read as it helps you identify companies worth paying attention to in the industry. Once you have read this part, you will find the relevant information in the news with ease.
4. Risk Warnings: Although this is a mandatory requirement in reports, researchers often do not give it thorough consideration. Therefore, this section does not hold much significance.
In fact, following the aforementioned method, many friends can easily find good stocks in the smart electric vehicle industry, and also determine when they are likely to rise or fall according to the market. This is the goal of Mr. Li’s article.
There are more than 100 listed companies in the smart EV industry, and based on personal opinions, here is what Mr. Li thinks about the industry’s trend in 2021. These companies can be divided into three major categories: vehicle, electrification, and intelligence. Judging from the market sentiment in 2021, the growth space of the three categories is: intelligence> electrification> vehicle. Here are Mr. Li’s analyses of specific company trends:
1. Vehicle category:
Overall Evaluation: Traditional motor vehicle companies listed in A-shares will not have significant growth in 2021. These traditional enterprises have shifted from growth to cycles. Last year, there was a high valuation of the automotive sector combined with the electrification concept. In the eyes of many fund managers, this sector will not show the momentum of 2020 in 2021. However, some companies are still worth keeping an eye on.
BYD: This is the most favored A-share vehicle enterprise in the secondary market, hands down. [Give BYD a high-end brand and a market capitalization of over one trillion is imminent.]\https://mp.weixin.qq.com/s/Mcr83M3TQ31NRQikRZTGxw
Geely Automobile: 2021 is the year Geely will consolidate its strength, supported by the galaxy and SEA structural products. In 2022, it will be the year when dividends are released. According to Mr. Li, capital likes to buy on the left side, and many funds have been buying Geely’s shares recently. Mr. Li has a piece of breaking news – Geely’s electric car platform has more models than any new vehicle manufacturer. Everything is ready, they just need to wait for the market to launch.“`
Great Wall Motors: A car company favored by the fund in 2020, but it is unlikely to achieve the expected performance in 2021. The operation cost of Great Wall’s 7 subsidiary brands will be high, and the profit margin in the first quarter of 2021 is declining. The valuation of Great Wall in 2021 has no room for imagination.
Changan Automobile: State-owned automobile group has been unpopular in the market (due to poor independent performance), but Changan Automobile is exceptional. Currently, Changan’s joint venture and independent performance are both improving. In the second half of the year, it is expected to launch the AB high-end brand. Compared with excellent performance, Changan’s market value of 80 billion is still undervalued.
2. Electrification sector
Overall evaluation: Compared with the whole vehicle sector, electrification has much better imagination. It is unrealistic to achieve growth in 2021 compared to 2020, but please believe that the return on investment in electrification will still rank in the top three of all tracks.
CATL: Described as stable, CATL’s performance and business (overseas + energy storage) will steadily improve in 2021. For such a leading company, holding it is the best way.
EVE Energy: The most promising power battery company, with a year-on-year increase of 31.40% in Q1 2021 in consumer battery sales and an increase of 302.21% in power battery sales. With the release of XPeng’s sales, EVE’s shipment volume will also be increased, and the performance will be realized.
Xinwanda: The most imaginative power battery company, Xinwanda has obtained designated points from many automakers, including Geely Holding (SEA architecture), GAC, Dongfeng Liuzhou, etc. The most anticipated thing is that Xinwanda is a supplier in Xiaomi’s mobile phone system. If it can enter Xiaomi’s automotive supply chain, its potential is unlimited.
3. Intelligent sector
Overall evaluation: In the first two parts, Lao Li mentioned the sector’s rotation. Intelligent electric vehicles also have sector rotation. Last year was the main upward trend of the electrification sector, and this year is the main upward trend of the intelligent sector. In 2021, the intelligent sector is the most imaginative, and companies like Desay SV, and Zhongke Chuangda have made rapid progress.
StarPower Semiconductor: A domestic replacement company for IGBT and SiC of intelligent electric vehicles. It has barriers, market, and profit. Not only does it have growth potential, but also imagination. Its overseas benchmark is Infineon.
“`# Translation Result
Weir Co., Ltd.: a camera CIS supplier that ranks among the top three globally and has an excellent track record. As the number of cameras in smart electric vehicles increases, it is foreseeable that the next few years will see a stage of both quantity and price increase. Moreover, with the high barriers in the CIS industry, there are fewer competitors, and the advantage will become even more apparent against the background of domestic substitution of semiconductor devices. Sony and Samsung are benchmarks for overseas companies.
Summary
The pattern of the development of intelligent electric vehicles 1.0 is already clear, and the capital market is mining the market opportunities from 0 to 1 of electrification and intelligence. As for the era of intelligent electric vehicles 2.0, the capital market is mining the market opportunities from 1 to 100 of electrification and intelligence. From the perspective of industrial development, with the arrival of self-owned high-end products, Baidu, and Xiaomi, the second investment boom of the intelligent electric vehicle industry has just begun, and 2021 is worth looking forward to.
(The above content is for reference only and does not constitute investment advice.)
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.