Tesla Motors is Overvalued AND Undervalued


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Tesla Motors is Overvalued AND Undervalued

One Great Surveillance Stock


We start today with a little recent history, namely, JP Morgan's opinion of Tesla Motors ( TSLA ) back on December 18, 2012, when the stock was trading at 34.

JP Morgan said, "We initiate coverage on shares of Tesla Motors ( TSLA ) 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 JP Morgan looked pretty smart. But then, in an amazing eight-week performance, TSLA shot up into triple-digits, leaving JP Morgan in the dust.

So why do I bring this up now? Because this past weekend, Barron's joined JP Morgan'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 Toyota, GM, etc.

Barron's 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.

That knowledge plus two bucks will get you a cup of coffee at Starbucks; 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 there are always 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 PE 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 JP Morgan had trouble imagining that the stock could hit 100. They didn't anticipate the blowout first quarter earnings report. 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!

Can you imagine what else the analysts haven't 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 U.S.?

How about the possibility that the company might expand its partnerships with Toyota and/or Mercedes?

How about the possibility that Tesla might, as an American manufacturer of cars, benefits from the "Buy American" movement among a wide swath of citizens who avoid buying foreign cars?

Those are all fairly good possibilities, short-term.

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 manufacturers?

How about the possibility that grass roots 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 with Google 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.


Here's an interesting stock, recently recommended by Mike Cintolo, editor of Cabot Top Ten Trader.

Its name is OmniVision ( OVTI ) , and its one purpose is designing-not manufacturing-the semiconductor chips that gather and process images. Here's what Mike wrote.

"OmniVision can take that 8 megapixel camera you bought last year and place it on a single chip. This technology is perfect for smaller cameras, mobile phones, notebooks, webcams, tablets, surveillance equipment and medical imaging systems. OmniVision vaulted into the investor spotlight last week when the company released an excellent fourth-quarter report posting revenue growth of 54%, and earnings growth of 55%. Growth was solid during the past year for OmniVision, with the company averaging revenue growth of 64% on a year-over-year basis. What's more, the company's focus on increasing volume and tightening its vendor relationships helped it ship more than 855 million image sensors during the year, leading to OmniVision's first $1 billion revenue year. With innovative products on the horizon, like its low-cost camera-cube chip, and increasing market share in China-the world's largest mobile phone market-OmniVision is back on track." 

Yours in pursuit of wisdom and wealth,

Timothy Lutts
Editor of Cabot Stock of the Month

Related Articles on Tesla:

Tesla Motors-Is It Too Late to Buy?

Tesla Motors Long Term Future

Video: Tim and Antony Currie of Reuters Breakingviews talk about Tesla on CCTV

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

This article appears in: Investing , Stocks
More Headlines for: OVTI , TSLA

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