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 (
back on December 18, 2012, when the stock was trading at 34.
JP Morgan said, "We initiate coverage on shares of Tesla
) 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,
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
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
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
, and its one purpose is designing-not manufacturing-the
semiconductor chips that gather and process images. Here's what
"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
Yours in pursuit of wisdom and wealth,
Editor of Cabot Stock of the Month
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Tesla Motors-Is It Too Late to Buy?
Tesla Motors Long Term Future
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