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Is the Tesla stock worth owning for the long-term?

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Tesla’s stock has seen huge volatility in 2017. The stock rose from about $215 at the start of the year to hit a high of $386.99 on June 23 – an increase of 80%. Thereafter, it fell more than 21% within a matter of 15 days. Tesla is a difficult stock to analyze as the usual valuation metrics don’t apply to it.

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Key observations

  • Tesla is changing the way we drive but it will take time for the change to happen
  • Tesla’s cars are popular in their segment
  • Model 3 is the key for the company’s future
  • The company is diversifying beyond manufacturing cars
  • Electric vehicle competition is heating up
  • At the current valuation, Tesla can’t afford any errors
  • Due to high risk and uncertainty, it is better to avoid this stock as a long-term bet

Out of the 16 analysts who offer a 12-month target price for Tesla Inc, the highest is $464, while the lowest is $155 and the median is $309.5. It has seven outperform/buy recommendations and seven underperform/sell recommendations. Nine analysts rate the stock as a hold. That shows the extent of division among the analysts.

But why is there such a large disparity in analysts’ expectations?

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Tesla is a disruptive technology

Tesla is not like any other automobile company that manufactures and sells cars. It is attempting to revolutionize the sector and change the way we drive. In pursuing this dream, the company will stumble along the way and face numerous roadblocks. Therefore, to analyze Tesla with the same performance metrics as the other car manufacturers is a futile exercise.

The believers in the company are confident that Tesla will be able to achieve its objective and assume a leadership position in the future. Hence, they are valuing Tesla with a high premium compared to the other automakers.

The non-believers, on the other hand, feel that the other automobile manufacturers will catch up with Tesla, which will prevent it from commanding a sizeable lead over other companies. Hence, they have valued Tesla like any other car company.

So, as investors, what should we do?

Before we dive into the specific details of Tesla, let’s first check the market share of electric vehicles out of the total car sales.

Current market share of electric cars

Globally, the number of electric vehicles in 2016 rose to 2 million, an increase of 60% over the previous year, according to the International Energy Agency (IEA).

However, even with the increase, the total share of the plug-in and battery-operated vehicles is only a minuscule 0.2% of the total light-duty vehicles sold. Nevertheless, the numbers will increase in the years ahead, as various countries move towards reducing pollution.

Electric Vehicle Initiative is a program involving major developed nations like the US, China, parts of Europe and the UK, which aims to increase the market share of electric vehicles to 30% by 2030. India, though not a part of the above group – but has more than a billion in population and a growing middle class – has said that it wants to sell only electric cars by the end of the next decade.

Optimistic figure by BP Chief Economist Spencer Dale is for the electric vehicle market to grow to 450 million by 2035. The future for electric vehicles looks promising.

Is Tesla a leader in its segment?

Source: Inside EVs

The monthly sales figures above show that two of Tesla’s models are among the top 5 selling electric cars in the US. This shows that the current models of Tesla are popular and in demand.

But, what does the analyst community expect from Tesla in the future?

Tesla invests heavily in R&D and is a leader in revolutionizing the plug-in technology. The efforts of today will benefit Tesla in the future to sell more cars.

The latest Long-Term Electric Vehicle Outlook by Bloomberg New Energy Finance puts Tesla in the driver’s seat and expects it to emerge as “the stand-out” with total sales of 709,000 vehicles by 2021.

“If they can stick to the Model 3 timeline, they’re going to be at the front edge of this for a while,” BNEF analyst Colin McKerracher said of Tesla in a phone interview to Bloomberg.

As shown above, expectations are that Tesla will extend its lead over the other car makers in the next five years.

Huge expectations from the Model 3 launch

Currently, the deliveries of the two cars, Model S and Model X has plateaued for the past four quarters. However, there is a huge expectation from the new car, Model 3.

This is the car that is likely to boost Tesla’s car sales exponentially, because it has been priced attractively at $35,000, way lower than its two current offerings. This helps a number of people to own a top-class electric car at an affordable price. Its popularity can be gauged from the 400,000 pre-orders – people who have paid to reserve a Model 3 car.

Elon Musk’s tweets confirm that the first delivery of 30 cars will be given to the lucky owners on July 28. Thereafter, in August, the company expects to manufacture 100 units and increase it to 1500 in September. It hopes to reach 20,000 cars by the end of the year.

Eventually, The Verge expects Tesla to manufacture 500,000 cars annually. Therefore, the next few months will be important for Tesla.

The user reviews of the new car and the company’s ability to meet production timelines will affect its stock price.

Tesla is planning to expand beyond manufacturing cars

While valuing Tesla, one should keep in mind that it isn’t only a car manufacturing company. In order to realize the dream of electrifying the way we travel, Tesla had to bring down the cost of the Lithium-ion batteries and also mass produce them.

This led to the birth of Gigafactory, a facility, which will have a capacity of up to 35 gigawatt hours of cell production and 50 gigawatt hours of pack production by 2018, reports Bloomberg.

Tesla plans to manufacture battery packs for homes and for backup of the electric grid. It has already inked a deal to supply 20 megawatts/80 megawatt-hours of energy storage to Southern California Edison.

Tesla’s purchase of SolarCity Corp., underlines its goal to become a clean-energy company in the future.

What are Tesla’s competitors doing?

While Tesla is out to change the way we drive, the traditional automakers have taken note of the changing requirement of the public for a cleaner vehicle.

Therefore, the big auto companies like General Motors, Nissan, Ford, Toyota are also jumping into this fray with their own electric or plug-in hybrid cars.

Volvo, the Swedish car manufacturer, owned by the Chinese automotive conglomerate Geely, has gone a step ahead. In a recent press release, it announced that every car launched by Volvo from 2019 will have an electric motor – both fully electric cars and hybrid cars.

“This is about the customer,” said Håkan Samuelsson, president and chief executive.

“People increasingly demand electrified cars and we want to respond to our customers’ current and future needs. You can now pick and choose whichever electrified Volvo you wish.”

Other than this there are a number of new startups who have jumped into the fray.

Therefore, Tesla will not have it easy. It will have to weather increasing competition from the traditional automakers and startups. Hence, the market will watch the performance of every electric car – both Tesla’s and its competitors – to justify the premium valuation Tesla enjoys.

Tesla has a very small room for error. Any failure can start a deeper correction in the stock, similar to the one that started on July 3.

Technically, what does Tesla’s chart predict?

Tesla was trading in a range for more than three years. It finally broke out of it in April of this year. From there, the stock had a near vertical rally, rising about 35% within a matter of a few weeks. In doing so, it came very close to its target objective of $396, where it saw a bout of profit booking.

Nevertheless, any breakout of a long consolidation, pulls back and retests the breakout level. Tesla’s stock is currently doing that. It remains bullish as long as it trades above the $280 levels. However, since the fall from the highs of $386.95 has been vicious, it’s better to wait for some kind of a consolidation before entering any fresh long positions.

Conclusion

Tesla is attempting to change the way we drive; however, it is still in early stages of that change and will not turn a decent profit for a few more quarters. Therefore, its valuation will only be decided on its future prospects. The investor has to be up to date with every news related to the stock, because with its current valuation, it cannot afford any misstep. With too many variables attached to the stock, it is better to avoid it as a long-term investment. The investors can look at more stable stocks with a clearer earnings projection for their long-term portfolio.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Stock Picks

Invest on Reversing PRGO and QCOM

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The S&P 500 Index (SPX) seems unstoppable as it continues to record one fresh high after another. The market even gapped up on January 12, opening at 2,770.18 after closing at 2,767.56 on January 11. Market participants are extremely bullish as they continue to buy even though SPX is in extreme overbought territory. At this point, however, it would be wise to take a contrarian point of view and be cautious about your positions. Your capital and all gains are at tremendous risk when the market is euphoric.

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You can still ride the mania by investing in stocks that are far from their tops. Let’s look at names that are reversing their trends.

PRGO – Perrigo Company

Perrigo Company (PRGO) is an international manufacturer of over-the-counter healthcare supplies, including infant formulae, supplements, and pediatric nutritionals. The company has close to 10,000 employees with sales of over $5 billion in 2016.

PRGO has been in a downtrend since it generated a lower high of 198.42 in August 2015. Things went from bad to worse for investors when the market broke crucial support of 120 in April 2016. During that week, the stock lost 21.02% of its value, as it dropped from 120.10 to 94.86. PRGO continued to tumble until it established support at 67 in March 2017. It consolidated for several months at that level until a volume spike in August 2017 brought the stock back to life.

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Technical analysis reveal that PRGO is on the verge of completely reversing its trend. It has created a bullish reversal pattern that relies on the breach of resistance at 98.

With the stock still a few dollars away from 98, you have a couple of options. You can buy at the current price level to reduce costs. Otherwise, wait for the stock to take out 98 with at least 10 million in volume in the daily chart. Those who bought at the 67 support level are likely to sell a significant part of their positions at 98 to lock their gains. PRGO needs a new set of investors who would absorb the selling pressure.

Once 98 is taken out, the target is 130.

Weekly PRGO Chart

Monthly PRGO Chart

As of January 12, the stock of Perrigo Company closed at 91.80.

Summary of Strategy

Buy: 91.80 or breakout at 98 with 10 million volume in the daily chart

Target: 130

Stop: A close below 87 negates this trade call

 

QCOM – Qualcomm Incorporated

Qualcomm Incorporated (QCOM) is an American multinational company that specializes in the design, development, manufacture, and marketing of wireless telecommunications products and services. The company has over 33,000 employees and has generated $23.55 billion in revenues in 2016.

QCOM went extremely bearish when it posted a lower high of 78.53 in October 2014. The stock nosedived as it struggled to find stability. It even gapped down in the weekly chart on several occasions before establishing support at 45 in January 2016. QCOM has been rallying since. It’s also very close to breaching resistance at 69.

Technical analysis reveals that QCOM has created a large bullish reversal pattern. To confirm the reversal, the stock must take out resistance at 69 with volume of 80 million in the daily chart. Those who bought at the 55 support level are likely to dump their shares at 69, knowing that this is a strong resistance. QCOM needs buyers who would be happy to purchase those shares at 69.

The strategy is to wait for volume confirmation before placing buy orders. Bears have defended 69 several times which means they wouldn’t give up that level without a fight. If you want to invest, make sure you get in when the bulls are the clear winner.  

Take out 69 and we have a target of 93.

Weekly QCOM Chart


Monthly QCOM Chart


As of January 12, the Qualcomm Company stock closed at 65.38.

Summary of Strategy

Buy: Breakout at 69 with 80 million in volume

Target: 93

Stop: After breakout at 69, a close below 64 invalidates this trade call.

 

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Stock Picks

Ride PBCT and OKE on Bullish Reversal Patterns

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The S&P 500 Index (SPX) continues to be aggressively bullish as the market records seven fresh highs in a matter of eight trading days. Momentum is sky high, and the market continues to climb even though it is in extreme overbought territory. While this may sound bullish, such an ascent is not sustainable. The market will eventually have a correction and buying at the top is not a great strategy. If you don’t want to be left behind however, be smart and buy stocks that offer limited risks but reasonable rewards.

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Let’s look at names that are near their breakout point.

PBCT – People’s United Financial Incorporated

People’s United Financial Incorporated (PBCT) is the bank holding company for People’s United Bank. The company was founded in 1842 and has 4,729 employees. PBCT operates in the commercial and retail banking segments, serving individual, municipal, and corporate clients.  

The stock has been in a downtrend since it generated a lower high of 21.76 in September 2008. It plunged to one lower low after another until it found support at 11 in August 2011. After going through a long accumulation period, it came back to life in November 2016 when the stock went from 16.48 to 18.43 in a week. More than one year later, it appears that PBCT is ready for its next big move.

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Technical analysis show that the stock has created an immense bullish reversal pattern that started way back in 2008. Resistance at 20 was created when the market failed to close above that level almost a decade ago. Fast-forward to 2018, the stock gets another chance to reclaim that level. The stock needed close to ten years to get to the verge of taking out resistance at 20.

These multi-year consolidation periods sometimes yield tremendous gains in the short term. The key for PBCT is to break resistance of 20. To do so, the market needs 10 million in volume on the daily chart. Those who bought at immediate support of 17.50 are likely to sell some of their positions. The stock needs a fresh set of investors who can absorb the selling pressure.

The strategy is to buy breakout at 20 with the required volume. Take out that resistance level, and we have a target of 29.

Weekly PBCT Chart

Monthly PBCT Chart

As of January 12, the stock of People’s United Financial Incorporated closed at 19.48.

Summary of Strategy

Buy: Breakout at 20 with 10 million in volume in the daily chart.

Target: 29

Stop: After breakout at 20, a close below $18.75 negates this trade call.

OKE – ONEOK Incorporated

ONEOK Incorporated (OKE) is a diversified energy company that owns and operates one of the country’s modern natural gas liquid systems. It is also involved in collecting, processing, storing, and transporting natural gas. The company was founded in 1906 to provide safe and reliable energy and services to its customers.

OKE went into a downtrend in October 2014 when the stock registered a lower high of 61.56. It tumbled to one lower low after another until it established support at 20 in December 2015. The stock consolidated at that level until April 2016 when it made a big push up. OKE went from 30.57 to 36.03 in one week. Since then, the stock has been gradually rising, and it is currently threatening to take out resistance at 60.

Technical analysis show that OKE has created a large bullish reversal pattern that started in 2014 when the stock posted a lower high at 61.56. Breach of resistance at 60 will attract momentum traders, and could push the stock up to 100.

The strategy is to wait for breakout at 60 with volume of 10 million in the daily chart. Those who bought at immediate support at 55 are likely to dump some of their shares at 60 to lock in gains. OKE needs a new batch of investors who would most likely sell above 60.

Otherwise, wait for the market to take a slight dip so you can buy as close to 55 as possible. The market is currently in overbought territory, which increases the likelihood of a pullback.

Weekly ONEOK Chart

Monthly ONEOK Chart

As of January 12, the ONEOK Incorporated stock closed at 58.67.

Summary of Strategy

Buy: breakout at 60 with 10 million volume or as close to 55 as possible.

Target: 100

Stop: A close below 52 invalidates this trade call.

 

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Trade Recommendation: Bottom Pick MOS and NWL

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The S&P 500 Index (SPX) hit another fresh high of 2748.51 points yesterday. This is the fifth fresh high of the index in the last five trading days. Yesterday’s volume is still above the 20-day average, which means that market participants are willing to buy at this level, expecting that the index will climb higher. All of this is happening while the index is in extreme overbought territory in the daily, weekly, and monthly charts. As an experienced trader, I would take this opportunity to sell the greed. The best time to sell is when you don’t have to.

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While selling the greed, use your capital and earnings to buy the fear. Let’s look at stocks that have fallen, but have managed to bounce back.

MOS – The Mosaic Company

The Mosaic Company (MOS) is a Fortune 500 firm and one of the world’s largest producers of two key crop nutrients: potash and phosphate. In mining those minerals, the company is able to produce high-quality fertilizer and animal feed. Half of which is sold to customers in North America while the other half is sold to customers around the globe.

MOS has been in a downtrend for over six years after generating a lower high of 74.31 on the weekly chart in July 2011. Things went from bad to worse when the stock broke critical support of 50 in July 2013. MOS then created one lower low after another until it tumbled down to 19 which is a support level that hasn’t been taken out since 2006.

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Technical analysis show that MOS continues to respect the 12-year old support level. The stock has bounced from 19 with significant volume on the weekly charts in September 2017. This indicates that market participants are investing because they believe the stock is cheap. However, RSI shows that the stock is also respecting immediate resistance of 67. MOS may take a slight dip, which is a good opportunity for you to buy. The strategy is to buy as close to support of 23 as possible.

Take note: the stock is still in a downtrend, but there’s an opportunity to generate profits by buying the bounce. Consider selling positions at 34 to lock in gains. If the market breaches that resistance level, the next target is 50.

Weekly MOS Chart

Monthly MOS Chart

As of January 8, The Mosaic Company closed at 26.29.

Summary of Strategy

Buy: as close to support at 23 as possible

Target: 34 and 50

Stop: A close below 19 negates this trade call.

 

NWL – Newell Brands Incorporated

Newell Brands Incorporated (NWL) is a global leader in marketing commercial and consumer merchandise such as food storage, home organization products, reusable containers, and office supply products. The company’s portfolio includes popular brands such as Coleman, PaperMate, Elmer’s, Rubbermaid, and Parker Pens.   

NWL has been in a downtrend since it created a bearish double top at 55 in June 2017. The stock lost almost half of its value when it plunged to just below 28, which is a very important support level. Since 1996, the stock surged whenever it went above this level. On the other hand, NWL tends to nosedive if that support level is breached.

So far, the stock appears to respect this support level. Massive increase in volume levels from end of October to end of November indicate capitulation. The significant drop in volume last week may suggest exhaustion. This is a good opportunity to bottom pick.

The strategy is to buy at current price level. Initial resistance is 35. Take out this level, and we have a target of 44.

Weekly NWL Chart

Monthly NWL Chart

As of January 8, the Newell Brands Incorporated stock closed at 32.08.

Summary of Strategy

Buy: 32.08

Target: 44

Stop: A close below 28 invalidates this trade call.

 

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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