ETFs to Avoid as Tesla Misses on Earnings - ETF News And Commentary


Tesla Motors ( TSLA ) dampened investor mood following its first quarter results after market close on Wednesday. Though the company beat on the revenue front, it missed on the bottom line on higher research costs associated with expansion and a huge new battery factory launch.

Adjusted loss per share came in at 14 cents per share in the quarter, much wider than the Zacks Consensus Estimate of loss of 10 cents. Revenues climbed 27% year over year to $713 million and was well ahead of the Zacks Consensus Estimate of $693 million.

The company delivered record 6,457 Model S cars in the first quarter of 2014, slightly above its own expectation of 6,400. It projects to deliver 7,500 Model S cars in the second quarter and is on track for more than 35,000 cars deliveries this year, up 55% from 2013. However, Tesla is still struggling with the lithium-ion batteries supply, which could hurt production in the coming months (read: Car ETF in Focus on Weak Auto Earnings ).  

The automaker is significantly expanding in Europe and China, the world's largest automobile market, and intends to offer new Model X crossover electric vehicle by the year end. Further, in order to boost its production, Tesla is building a $5 billion Gigafactory, which would likely become operational in 2017.  

In the wake of the earnings miss, Tesla shares fell as much as 7% in after-market trading on Wednesday on heavy volume.

Why Tesla Will Fall?

The bearish trend will likely continue in the coming months given investors move away from growth and momentum stocks like Tesla and many others. This is especially true, as the stock seem to be overly valued at current levels. TSLA is currently priced at forward P/E multiple of 173.58 versus industry average of 11.89 and peer average of 17.74 (read: The Momentum Stock Crash Puts These ETFs in Focus ).

Further, Tesla has a Zacks Rank #5 (Strong Sell), indicating it will continue to underperform in the coming months. With that being said, more pain is in store for this automaker suggesting sluggish trading for the stock going forward.

ETFs to Avoid

Given this, some of the ETFs having substantial allocation to this luxury carmaker would be in focus in the coming days. Investors should closely monitor the movement in these funds and avoid if the stock drags them down:

Market Vectors Global Alternative Energy ETF ( GEX )

This ETF tracks the Ardour Global Index, focusing on global companies that are primarily engaged in the business of alternative energy. The fund holds about 31 stocks in its basket with AUM of $109.8 million while charging 62 bps in fees per year. Average daily volume is paltry under 14,000 shares per day on average. Tesla occupies the third position in the basket with 9.09% allocation (see: all the Alternative Energy ETFs here ).

From a sector perspective, industrials take the largest share with 39.4%, closely followed by information technology (36.8%) and utilities (11.5%). In terms of country exposure, the fund is skewed toward the U.S. with 60.8% share while Denmark, China, Italy and many others receive minor allocations. The ETF lost about 2.9% over the past one month and has a Zacks ETF Rank of 4 or 'Sell' rating.

First Trust NASDAQ Clean Edge Green Energy Index Fund ( QCLN )

This fund tracks the Nasdaq Clean Edge Green Energy Index and manages assets worth $174.6 million. It charges 60 bps in fees per year while trades in volume of more than 122,000 shares per day suggesting a relatively tight bid/ask. In total, the product holds 50 U.S. securities in its basket with Tesla Motors taking the third spot with 7.40% of assets.

Technology firms dominate this ETF, accounting for over one-third of the assets while oil & gas, and industrials round off to the next two spots. QCLN is down over 7% in the year-to-date time frame but has a Zacks ETF Rank of 2 or 'Buy' rating with a 'High' risk outlook (read: 3 Incredible ETF Buys Under $20 ).

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MKT VEC-GLBL AE (GEX): ETF Research Reports

NASDAQ-CL EDG G (QCLN): ETF Research Reports

TESLA MOTORS (TSLA): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Earnings , ETFs

Referenced Stocks: GEX , QCLN , TSLA

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