Tesla Motors is Overvalued AND Undervalued

 

Tesla Motors is Overvalued AND Undervalued

Facebook, Edward Snowden and Privacy

One Great Surveillance Stock

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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.

Short-term, you can get my latest advice on handling the stock at today’s trading levels by subscribing to my investment advisory, Cabot Stock of the Month. Subscribers who’ve followed my advice this far are sitting on a 234% profit in the stock.

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Moving on, we’ve all become accustomed, to some degree, to a world with reduced privacy.

Between Facebook (FB) and LinkedIn (LNKD), surveillance cameras, phone records, credit card records, even the E-Z Pass on our cars, we all leave behind a trail of digital bread crumbs.

Realizing this, for several years I’ve been saying—half jokingly—that the Internet knows all, so you better be good.

And I have been good; my biggest transgression is speeding, which almost everybody does.

But now that our government’s spying activities have been exposed by Edward Snowden, it’s time for a serious conversation about this, starting with these two questions.

First, is it right that the U.S. government collects massive amounts of data about law-abiding citizens?

Second, is it right that we didn‘t know about it?

Big Brother is Watching and Tesla Motors

Remembering the words of Benjamin Franklin, who wrote, "Those who are willing to trade freedom for the illusion of security, deserve neither and will lose both," I answer a loud “No” to both questions.

Spying on law-abiding citizens is wrong where there is no probable cause—and doing it surreptitiously is worse.

Sure, the practice helps catch terrorists, but I sincerely doubt that it justifies the cost, in either expense (our tax dollars) or loss of privacy.

Just look at what the IRS did with regard to Tea Party groups—but not to corresponding liberal groups—to see a perfect example of politics creeping into government.

And then there’s security! If Edward Snowden was the first weak link in this enterprise (we’re lucky his motives were good), the next defector might be less patriotic and choose instead to engineer a massive data dump to less friendly parties.

And what happened to Obama’s promises of transparency? He’s simply continued the practices of covert information-gathering practiced by George Bush’s administration, reminding us how insular a world Washington has become (both parties!), and how much they don’t work for you and me.

Lastly, a petition has been started at whitehouse.gov to pardon Edward Snowden. I’ve signed it and I hope you’ll consider signing it too. Here's the link.

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Speaking of surveillance, 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.”

For more details, including guidance on exactly where you should buy the stock, click here.

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


Timothy Lutts can be found on Google Plus.

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