Elon Musk, Tesla Factory, Fremont (CA, USA) in 2011. Photo by: Maurizio Pesce. Wiki Commons License. Used with permission.
Column By Natalie Pace
Dear Tesla Fan: Investing in one individual company is a risky bet. You should not be gambling your nest egg, retirement or future on individual stocks until you get as good at stock picking as Warren Buffett. Invest only fun money that you are willing to lose. That’s the first and most important consideration.
When I’m evaluating an individual stock I use three tools. The Three Ingredient Recipe for Cooking Up Profits ® is the template. My Stock Report Card ® and 4 Questions ® help me pick a leader, which is the second ingredient of the recipe. (These strategies are all outlined in my 1st book Put Your Money Where Your Heart Is.) This system works better than reading headlines. If you just read headlines and articles about a company and invest, you’re always going to be late. Also, articles tend to be hyperfocused on one newsworthy event, rather than taking that event and putting it into context. The endless rehashing of Elon’s recent attempt to take Tesla private is like looking at one-piece of a 100-piece puzzle. My system turns over the majority of the pieces so you have a better picture of what you’re looking at. When you are just reacting to the news, more often than not, you are on the sell low or buy high side of the equation – in other words, a losing strategy.
Another problem is that most people buy without ever considering what their exit strategy is, or how the general marketplace will perform (Ingredient #3 of my recipe).
So, here’s a thumbnail analysis of Tesla using my system.
The 3-Ingredient Recipe for Cooking Up Profits.
- Start with what you know and love. What do you really know about Tesla products? Do you own a Tesla? Have you test driven a Tesla car or done enough research to know what sets Tesla apart from the competition?
- Pick the leader. Tesla’s revenue jumped 43% year over year in the 2nd quarter. By comparison, Ford and GM car sales are down year over year. Tesla is projecting to be cash positive this year. With 8,000 cars per week being produced (6,000 Model 3 and 2,000 Model S and X), the next two quarters should look spectacular – barring any force majeures (according to the 2nd quarter earnings letter). So, why are Tesla vehicles so popular? Because the car is outstanding, and also because electric cars have become the fastest growing vertical in auto manufacturing. If you haven’t driven a Tesla or freshened up on the cars’ safety ratings, then you need to jump back up to Ingredient #1 and do more research.
- Buy low; sell high. Tesla’s price on Friday, Aug. 31, 2018, was $300/share. Tesla’s 52-week low is $245/share. In 2013, you could have bought the stock for half that price. The general marketplace is trading at an all-time high in the 10th year of a bull market. So, before you buy more Tesla stock, make sure that you have an exit strategy that can gain before the general market weakens. Successful investing in the 10th year of a bull market means considering what the company can do, and also what the general stock market will do. When Elon announced that Tesla was going private at $420/share that was an easy proposition. However, Tesla announced last week that it would remain public.
An outstanding 3rd quarter earnings report in early November could definitely spark the Tesla share price. However, if the general stock market is going down, it tends to drag down the share price of all stocks – even great companies, with rare exception. The U.S. economy will report a second-quarter GDP growth report in the range of 4% at the end of September. But the 3rd quarter, which reports on October 26, 2018, is expected to be lower – with the New York Federal Reserve Bank forecasting 1.98% GDP growth. So, the microanalysis of the Tesla company looks very promising, but the macro analysis of stocks is quite problematic. (Read some of my macro economy blogs listed below for additional information.)
If you’re interested in purchasing a Tesla vehicle, it pays to buy in 2018. The $7,500 U.S. tax credit will phase out in 2019.
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Natalie Wynne Pace is the author of the Amazon bestsellers The Gratitude Game, The ABCs of Money and Put Your Money Where Your Heart Is (aka You Vs. Wall Street). She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical). Natalie Pace’s great, great grandfathers James Pace and Lorenzo Wright were some of the original pioneers of Graham County. Call 310-430-2397 to learn more about Natalie Pace’s books, private, prosperity coaching, and 3-day Financial Empowerment Retreats.