Is TSLA Still a Good Buy?
Has Apple (AAPL) Topped?
The stock market is a curious place.
It offers the promise of great profits but all too it often fails to deliver. All too often, the rich get richer while the amateurs walk away poorer-and often no wiser.
However, there are many ways to succeed in the stock market; my business is built upon them. And today I'm going to review one recent spectacular success, a story that continues to unfold as I write this.
It's the story of Tesla Motors (TSLA), the manufacturer of electric cars.
When I first recommended TSLA stock to the readers of Cabot Stock of the Month back in December 2011, the only Tesla cars on the street were the two-seat Roadsters; the company had sold about 2,000 of the little sports cars worldwide.
But it was developing the four-door Model S, promising to begin deliveries in mid-2012. It had about 6,000 deposits for the big car. And beyond that was the promise of an all-electric mass-market car.
In short, many people knew nothing about the company, and among those that did, there was enormous uncertainty about Tesla's ability to survive; any operating profits looked at least a year away and there were widespread worries about the limited range of electric cars.
But the stock was acting well! Here's the chart I published at the time.
The stock's main trend was up, but a negative analyst opinion had sparked a pullback that looked normal to me. In fact, I wrote, this "leaves it sitting right on its 200-day moving average, which I view as a buying opportunity."
What Tesla had, therefore, was the three main attributes of a great growth investment.
1.The company had a revolutionary product that could eventually serve a mass market and thus it had enormous growth potential.
2.The company was not well loved; it was not even well known.
3.And the stock was in an uptrend, revealing that investors as a whole were accumulating the stock because they were developing more positive perceptions of the company.
Today, 20 months later, everything has changed!
Tesla turned profitable in the first quarter of 2013.
It's sold more than 40,000 cars that have driven more than 394 million miles.
Its Model S sedan has exceeded all expectations:
It achieved the highest score of any car ever tested by the National Highway Traffic Safety Administration.
It achieved the Highest Score of any car ever tested by Consumer Reports.
It was named Car of the Year by Motor Trend.
It was named Automobile of the Year by Automobile Magazine.
And it gets the equivalent of 89 mpg!
(I received mine last September-after a six-week wait-and have now driven it more than 10,000 miles. It's my only car, and it's exceeded expectations!)
And today the future is bright.
Coming next spring is Tesla's highly anticipated Model X SUV and coming a couple of years after that (at least) will be the more affordable ($35,000) third generation car, which I call the BMW 3-killer.
Plus there's a growing network of Superchargers (currently in North America, Europe and China) that enables owners to recharge free, for life.
Last but not least, there are plans for a Gigafactory, which will employ 6,500 employees and cost roughly $5 billion to build (Panasonic has signed on as major partner).
Located in an as-yet-unchosen western state, the Gigafactory will take rail cars of ore in one end and send finished battery packs out the other end, thus eliminating large transportation costs from the current production chain. That plus growing economies of scale should drive the cost of batteries down 30% rather quickly, and within 10 years-according to CEO Elon Musk, battery cars should have price parity with internal combustion engine cars!
In short, the company has come a long way. It's now a well-known company, even a well-loved company in some quarters.
Furthermore, its chairman, Elon Musk, is regularly lauded as the second coming of Steve Jobs or Thomas Edison.
And the stock's chart? It peaked at 260 in February of this year, bottomed at 180 in May, and has been working its way back since. In fact, it's close to breaking out to a new high as I write, while the broad market is getting progressively weaker.
Is TSLA Still a Good Buy?
So should you buy TSLA now?
The fundamental picture is certainly a lot brighter than it was back in 2011.
But that's why the stock has a valuation of $31 billion, or almost 13 times revenues. (Compare that to General Motors' valuation of $54 billion, which is an astonishing one-third of revenues.)
Dollar for dollar, the market now likes TSLA 39 times more than it likes GM.
In short, TSLA is no longer an undiscovered diamond in the rough; now it's a high profile market leader.
It's possible that the stock can continue to climb from here, especially if market leadership narrows as this bull market ages (a common trait of older bull markets).
But it's also possible that TSLA is close to its point of peak perception, and that it will take years for the company's value to narrow the gap with the stock's valuation.
There's no simple answer to this.
But every week, I update the readers of Cabot Stock of the Month with my latest opinion on TSLA and the other six stocks in my portfolio, and I'd love for you to join the group.
Note, for Cabot Stock of the Month, I try to pick the one best stock to buy from Cabot Market Letter, Cabot Top Ten Trader, Cabot Benjamin Graham Value Investor and Cabot Dividend Investor.
My selection for August was from Cabot Benjamin Graham Value Investor, a low-risk stock that I described as "sitting right on the basement floor" (that's how low it was). But just last week, the company came out with a terrific second-quarter earnings report that blew away analysts' estimates, and the stock vaulted 15% the next day!
I can't promise that kind of performance with every pick, but I can promise that when you subscribe to Cabot Stock of the Month, I'll keep you updated on every recommendation, so you'll always know exactly what to do with your stocks.
Has Apple (AAPL) Topped?
Turning to another, more mature market leader, I'd like to present the possibility that Apple (AAPL) has topped here, at least for the current large market cycle.
AAPL, of course, is the most popular stock in the U.S.
But the chart is looking shaky.
Specifically, AAPL first hit 100 in September of 2012. Then it fell to a low of 55 in 2013. And by the end of last month, it had worked its way back to 100 before beginning a modest correction.
But the stock's relative performance (RP) line is much weaker, telling us that the broad market has outperformed AAPL significantly over this time.
Such a formation frequently-but not always-presages an important top in a stock.
This doesn't mean that you should run out and sell AAPL here.
But you should remember that the market is always changing, that AAPL is not what it was a few years ago, and that your real goal should be to find the next AAPL, the next TSLA, etc.
Maybe it's Skechers (SKX).
The Fastest Growing Shoe Company In The World
Skechers burst on the scene in the early 90s as a manufacturer of athletic shoes (sneakers) geared to skateboarders, but it's diversified widely over the years.
Today the company sells over $2.1 billion of footwear in 100 countries.
Back in April as I was watching the Boston Marathon, I was surprised to see that the winner, Meb Keflezighi of California, was wearing Skechers! That certainly gave a boost to the stock-which you can see on the chart here.
And it's done well since.
Here's what Mike Cintolo, chief analyst of Cabot Top Ten Trader wrote about the company in a recent issue.
"Trendy footwear manufacturer Skechers USA continues to dress for success. Skechers has now logged four consecutive quarters where earnings growth has exceeded 100%, year-over year. In fact, in the most recent quarter, Skechers saw earnings soar 386% as the company's combination of strong top-line growth and effective cost management once again drove stronger-than-expected results. According to management, Skechers is seeing increased demand for products across all categories, even as the company diverts focus to new product lines. Furthermore, Skechers expects to see continued growth throughout 2014, with cost containment, inventory management, increased global distribution and rising order backlogs helping to sustain the company's momentum. Speaking of global distribution, Skechers saw international revenue rise 54% during the second quarter, with the company's partners in the Philippines, Mexico, Turkey, Taiwan, South Korea, New Zealand, the UAE and Australia experiencing growth. Growth is stellar in Europe and the company is finally starting to gain a foothold in Latin America-another potential hotbed for additional sales. Once again, Skechers is living up to its reputation as the fastest growing shoe company in the world."
So, you could just buy SKX right here. It might work out okay for you.
But what I really recommend is that you take a no-risk trial subscription to Cabot Top Ten Trader, so that you can Mike's precise instructions for investing in the stock.
For every stock recommended in Cabot Top Ten Trader, Mike gives a precise buy range, as well as a stop loss for controlling risk. So while you might get lucky doing it on your own, your odds are better if you follow Mike.
Yours in pursuit of wisdom and wealth,
Chief Analyst, Cabot Stock of the Month
Publisher, Cabot Wealth Advisory