Back on December 18, when
) was trading at $34, JPMorgan said, "We initiate coverage on
shares of Tesla Motors with a Neutral rating, relative to our
combined autos and auto parts coverage, and establish a December
2013 price target of $37, suggesting +8% upside potential.
"Our Neutral rating balances notable investment positives -
including a highly differentiated business model, appealing product
portfolio, and leading-edge technology - with above-average
execution risk and valuation that seems to be pricing in a lot."
In the three months after that, TSLA traded between $35 and $40,
and JPMorgan looked pretty smart. But then, in an amazing
eight-week performance, TSLA shot up into triple-digits.
Why do I bring this up now? Because this past weekend,
joined JPMorgan's non-party with a cover story suggesting that TSLA
could fall to $50 if it doesn't get its battery costs down fast,
and if the Chinese market doesn't buy the company's cars as
expected, and if the company's upcoming $30,000 car is outsold by
electric cars from the likes of
General Motors Company
point - which it likes to make with every popular young stock that
reaches nosebleed territory - is that TSLA is overvalued and the
stock is risky here. Of course Tesla is overvalued here.
But Tesla is probably undervalued from a long-term perspective. And
if you're going to be a long-term investor in TSLA - or any great
growth stock - you've got to realize that stocks seldom sell for
fair value. There are always stocks that are overvalued, and stocks
that are undervalued.
That's because the market is simply the aggregate of the actions of
all investors with opinions about the future. These investors don't
simply consider profit margins and P/E ratios; these investors are
also influenced by hopes and dreams, anxieties, and fears.
The trouble with traditional analysts is that many have no
imagination. Only six months ago, the analysts at JPMorgan had
trouble imagining that the stock could hit $100:
- They didn't anticipate the blowout first-quarter earnings
- They didn't anticipate the short squeeze.
- And they didn't anticipate the secondary offering, which
raised more than $1 billion and allowed the company to repay its
loan to Uncle Sam - nine years early!
What else haven't the analysts imagined? How about the possibility
that Tesla's Model S might be even better received in China and
Europe - where gasoline costs much more - than in the US?
How about the possibility that the company might expand its
partnerships with Toyota and/or Mercedes? How about the possibility
Tesla might - as an American manufacturer of cars - benefit from
the "Buy American" movement among a wide swath of citizens who
avoid buying foreign cars? Those are all fairly good possibilities,
Looking longer term, how about the possibility that Tesla's
supercharger network might become the standard in fast recharging
technology, and that Tesla collects licensing fees from other
How about the possibility that grassroots activism might defeat the
protectionist actions of the auto dealers' associations by getting
federal legislation to allow direct sales of cars to individuals in
every state? And how about the possibility that Tesla might partner
) to produce the first driverless car?
Thinking even more creatively, try to imagine the insurance
industry's approach to insuring cars that will not be at fault in
any accidents. Yes, it's longer-term, but it is coming.
In sum, I continue to believe that the long-term prospects for
Tesla Motors are very bright, and I continue to believe that the
stock is an attractive long-term investment.
Editor's Note: This article was written by Timothy Lutts of
Cabot Wealth Advisory
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