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Is Tesla's Stock the Safe Harbor During Pullback?

by Christopher Larson February 02, 2020

Is Tesla's Stock the Safe Harbor During Pullback?

 

This month has been fairly rocky for international markets. Measurements have begun the shift from greedy and bullish to defensive and bearish. On top of this, global fears have been shaking markets. Coronavirus, trade deal uncertainty, and Brexit have taken their toll on indexes.

 

In the midst of all this economic uncertainty, Tesla has absolutely dominated the scene -- and with a market cap now reaching $115 billion, Tesla is absolutely a high-cap and high-publicity stock.

 

Here is a list of the gains/losses of certain publicly traded companies in January of this year. Some are included for relevance to Tesla, some for relevance to the market as a whole.

 

S&P 500 DOWN 1.77%

$FORD DOWN 5.17%

$MSFT UP 7.00%

$FB DOWN 2.64%

$AAPL UP 3.97%

$GM DOWN 9.76%

$TSLA UP 52.12%

 

And here is this list visualized and in order:

 

 

The S&P 500 Index is commonly used for its ability to indicate the health of the market economy, especially in the United States, where 71% of the companies' cumulative income comes from. As is shown by the graph above, the S&P 500 closed lower at the end of January than it did at the start. 

 

Some believe that this may be the beginning of a long-anticipated recession. In the past six months, markets have seen a huge gain, one of the largest consistent streaks in United States history. As has often been the case in the past, large bull runs are followed by brief but potentially devastating mini-recessions. As Twitter user Steve (@x22steve8244) said, "...in a parabolic moonshot, where it ends is anyone's guess." 

 

Naturally, a great bull market has to face some selling off eventually. Global fears may even promote a recession larger than anticipated. With all the uncertainty, can one expect Tesla to continue to deliver? 

 

 

Tesla's stock has been under a bit of fire recently for its new all-time highs. With the company gaining more than 100% in the past three months, many are beginning to claim overvaluation. 

 

Markets are almost always forward-looking. Any stock is going to have the company's future potential priced in along with the valuation. The record-breaking stock tear has brought many new eyes to Tesla, with more and more getting on the bandwagon. People are finally beginning to realize Tesla's potential to be a serious disruption across several industries. 

 

The underlying economic principle that drives stock prices the most is probably the one that analysts hate the most: Something is worth whatever people are willing to pay for it. 

 

An analyst's job is to examine a company, factor in threats, advantages, assets, and debts, and determine an approximate value to give the company as a whole, which is then divided to find a price per share of stock. If consumers and financial institutions are willing to pay $650+ per share, that is the true value of the stock, regardless of anyone else's opinions. If there were enough people willing to pay $800 per share, that would be the value of the stock. 

 

People are gaining confidence in Tesla. When the markets fall on hard times, Tesla has the potential to consistently deliver promising results. As public opinion on renewable lifestyle, green energy, and electrification continues to change, Tesla is waiting with open arms. The past two quarters have been a stark reflection of Tesla's ability to adapt to a changing environment. The first quarter of every year is seasonally difficult for all automakers. It is very possible that Tesla will again show its capacity to adapt and still turn a substantial profit for the quarter, despite global uncertainty. 

 

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 Cover image used courtesy of Christopher Larson / renewablethreads.com.

Legal Disclaimer --

This article is for informational purposes only. You should not construe any such information or other material as an investment, financial, or other advice. Nothing contained in this article constitutes a solicitation, recommendation, endorsement, or offer by Christopher Larson, Tesmanian, or any third party service provider to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.

Christopher Larson is not a shareholder in Tesla, Inc., however currently (at the time of this article's publishing) holds options or securities in Tesla Inc. and/or its affiliates.




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