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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.

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?

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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4.7 stars on average, based on 9 rated postsRakesh Upadhyay is a Technical Analyst and Portfolio Consultant for The Summit Group. He has more than a decade of experience as a private trader. His philosophy is to use technical analysis for momentum trading and fundamental analysis for long-term positions. Rakesh likes to keep himself fit by lifting weights and considers himself to be a spiritual person.




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Stock Picks

Stock Pick: Symantec Corporation

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Symantec Corporation (SYMC) is a Fortune 500 company that sells cybersecurity applications and services. Their mission is to help consumers and organizations protect and manage their most valuable data. The firm carries reputable cybersecurity software brands including Symantec, LifeLock, and Norton. As of June 2018, Symantec has 13,000 employees with sales of $4.8 billion.

Technical Analysis of Symantec Corporation (SYMC)

Symantec has been correcting since it posted an all time high of $34.20 in September 2017. At that level, SYMC was showing signs of weakness. It created a large bearish divergence on the weekly chart. On top of that, the stock failed to go above $34 resistance after several attempts. These were indications that bulls were exhausted.

One year later, bulls appear to have replenished their numbers. They are now working hard to keep the stock from officially reversing its trend.

Technical analysis shows that SYMC is respecting its uptrend support when it bounced off lows of $17.49 in October 2018. The bounce was supported by heavy volume, which enabled to pair to climb as high as $23.57 early this month. The stock has been pulling back since but we’re confident that the bounce will continue.

That’s because Symantec has numerous support levels at this area on top of the uptrend support, including the 50% Fibonacci level of $18.71. In addition, the weekly RSI has broken out of two resistances. This tells us that bulls are gaining heavy momentum.

Fundamental Analysis of Symantec Corporation (SYMC)

In addition to technical analysis, fundamental analysis also support our bullish view.

In May 2018, Symantec made headlines as the stock crashed by 34.7% after the company announced an internal investigation. The investigation focused on the company’s questionable accounting practices. The cybersecurity firm sought the services of independent counsel and kept the SEC in the loop. Symantec also warned investors that the investigation might lead to financial restatements.

Four months later, Symantec announced that the investigation has concluded. The company said that it will not restate its previous financial statement with the exception of one transaction that’s worth $13 million.

With this development, the stock appears to have been unjustly sold. It might take SYMC some time to regain investor confidence but it seems to be fundamentally sound. Its trailing twelve months price-to-earnings ratio is 11.70. This tells us that the stock is undervalued considering that its five-year maximum is 23.33.

The strategy is to buy on dips as close to $20 as possible. As long as the stock is above this level, it has the momentum to rally to our target of $26.

The timeline for the target is more than six months.

Weekly SYMC Chart

Monthly SYMC Chart

As of this writing, the Symantec Corporaton stock (SYMC) is trading at $21.83.

Summary of Strategy

Buy: On dips as close to $20 support as possible.

Target: $26

Stop: Close below $18.75.

 

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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3.7 stars on average, based on 269 rated postsKiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and ETFs, as he does his own crypto research and is the subject matter expert at ETFdb.com. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.




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Analysis

Black Friday: How to Capitalize on It

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By Dmitriy Gurkovskiy, Chief Analyst at RoboMarkets

The most interesting event this month in the US is the famous Black Friday, the day of large discounts, which is on Nov 23. On this day, Americans make 45% of all their annual purchases. The US economy is doing well compared to other countries, with the Fed hiking the rates in order to cool the markets down. The unemployment rate is at its record lows, which means people have money, and there’s going to be much hype about the Black Friday as usual. With this scenario, a few companies may show great potential during Q4. First, there’s e-commerce that is a very strong competition against offline stores. Amazon (NASDAQ: AMZN) is the leader here, with the market cap of $1T. In Q3, Amazon made a record high when it comes to quarterly earnings. However, the chart shows it is Q4 that is going to be the most profitable for the company.

Unluckily, after the Q3 report, the price was unable to reach new highs. Investors’ expectations were higher than the data that came out, which led to the share price going down. However, Amazon did make profit, and there’s a good trend in it. Furthermore, Amazon management expects to book the record profit in Q4 2018. In October, we analyzed Amazon and said the company stock is going to trade at around $1,400. It is now trading at its low at $1,476, however, and is above the 200-day SMA. When the price goes below $1,700, the volumes get much higher, according to the chart. Thus, this may be the support the price may start recovering from.

If the earnings expectations are met, Amazon may well rise above the round number of $2,000. Another large company that may get nice profits is eBay (NASDAQ: EBAY), which is mostly centered around e-commerce, too. The profits are good here, while the stock price leaves much to be desired.

Still, eBay incomes are rising quarter to quarter. According to the expectations, Q4 is going to be the most profitable in the recent few years.

Over 2018, eBay stock went down by nearly 30%. Perhaps, the reason for that is the increasing debt, with the debt to equity ratio now being 1.11, while, for Amazon, it is just 0.63. Technically, the stock went down till November last year, too, while after the Q4 report it traded at its highs. This time, the stock looks somewhat weaker than before, and may only reach $36 or so.

Walmart, an offline store chain, may also be included into this list, as this company is sure to get good profits thanks to Black Friday sales. Nevertheless, while eBay and Amazon shares corrected before Q4, Walmart is rising and is trying to break out its record highs made a year ago. Walmart earnings, like internet giants’ ones, are sure to be sensitive to the sales before Xmas.

The company reports its earnings on Thursday, and they are expected higher than the same quarter last year. The income is visibly growing up, and the record highs for Q4 earnings expectations are quite logical. Walmart has been recently going up thanks to large hedge funds positions, with around 52 funds now including this stock into their portfolios.

Technically, as said before, the stock is quite strong. The price is currently above the 200-day SMA, showing good growth and ready to hit new record highs. As for the entry, it’s hard to determine the risk. The nearest support levels are $100 and $90, and once the price reaches either, it could be a good entry point for the next few months.

 

Disclaimer

Any predictions contained herein are based on the authors’ particular opinion. This analysis shall not be treated as trading advice. RoboMarkets shall not be held liable for the results of the trades arising from relying upon trading recommendations and reviews contained herein.

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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4.7 stars on average, based on 17 rated postsHaving majored in both Social Psychology and Economics, I went on to continue my education in post graduate. Later I worked as a team lead of a tech and fundamental analysis lab in the Applied System Analysis Research Institute. This helped me to acquire all necessary skills and experience to become a successful trader and analyst, as well as a portfolio manager in an investment company. I'm a pro in the financial field and the author of articles for various international media. I also hold the position of Chief Analyst at RoboMarkets.




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Analysis

Time to Focus on General Motors

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By Dmitriy Gurkovskiy, Chief Analyst at RoboMarkets

As earnings season continues, analysts have been bewildered by General Motors’ (NYSE: GM) report.  Over the last year, GM shares became 35% cheaper, while income was mixed, both rising and falling, and net profit turned positive only in late 2018.

The GM stock price has been under pressure, most likely because of rising debt. General Motors went bankrupt in 2009, liquidating all previous debts, but new ones started appearing soon. The debt-equity ratio reached 1.93 ever since, making it a serious question whether or not to invest in such a company that had previously been bankrupt.

Since the second IPO in 2010, GM shares have been unable to overcome the 30% rise barrier, while the DJIA rose by over 100% over the same period. This made interest in GM quite low.

With ever-growing debt and shareholder pressure, the company had to cut expenses, and this was done through cutting jobs and closing factories in various countries. For instance, the GM Korea factory is likely to get closed, with over 2,000 jobs cut. Another factory, located in Saint Petersburg, Russia may be closed, too. Meanwhile, in North America, around 36% of jobs were cut.

Overall, the former multinational giant is leaving the markets in Europe, Indonesia, Thailand, India and Australia. The company may end up present only in the US and China.

Naturally, running a company with multiple branches in multiple countries is much harder than the one working in a single country. A good example is Tesla, which in 2008 was saved by a single contract with SpaceX (both owned by Elon Musk) worth $1.8B, while General Motors was unable to do with even $30B.

After the 2008 crisis, US automotive companies faced serious issues. Ford Motor, for example, has not shown any good results ever since, and is still trading at its 2010 lows.

Nevertheless, in mid 2018, Warren Buffet’s fund disclosed information on its Q2 portfolio that included Apple (Buffet said he would like to control 100% of Apple shares), Goldman Sachs, Teva, Delta Airlines and General Motors. If GM is on this list, other investors might also want focus on it.

Meanwhile, in Q2, GM shares rose sharply by 10%, which was the result of an agreement between General Motors and an investment fund run by SoftBank Group, the Japanese telecommunication giant. The fund invested $2.25B into the autonomous taxi development led by a part of GM team.

Thus, Q2 was overall positive for GM, and while the stock price did not increase significantly, the net profit did. As a result, the Q3 report was great, beating all expectations.

The net profit in Q3 reached $2.53B, or $1.75 EPS, against the $2.98B loss, or -$2.03, reported last year. The yearly EPS is expected at somewhere between $5.80 and $6.20, though GM management assumes it could be even higher.

Around 86% of net profit comes from the North American market, while only 14% covers the rest of the world. This is quite in line with the company’s policy regarding closing its regional branches.

Meanwhile, car production was lowered by 14.70% compared to last year, but GM succeeded thanks to the price increase and truck sales, where the yield is higher.

Technically, the price is still below the 200-day SMA, which may push values to the descending trend line which was broken out thanks to the positive report. If the price then bounces, it may rise above $40. GM management’s prediction on beating the yearly profit expectations may be priced quite soon, while then the yearly report comes, the price may head down. The Buy Rumors, Sell Facts rule may well work here.

Disclaimer

Any predictions contained herein are based on the authors’ particular opinion. This analysis shall not be treated as trading advice. RoboMarkets shall not be held liable for the results of the trades arising from relying upon trading recommendations and reviews contained herein.

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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4.7 stars on average, based on 17 rated postsHaving majored in both Social Psychology and Economics, I went on to continue my education in post graduate. Later I worked as a team lead of a tech and fundamental analysis lab in the Applied System Analysis Research Institute. This helped me to acquire all necessary skills and experience to become a successful trader and analyst, as well as a portfolio manager in an investment company. I'm a pro in the financial field and the author of articles for various international media. I also hold the position of Chief Analyst at RoboMarkets.




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