'Tesla Is a Zero'
A new Tesla bear emerges... 'Tesla is a zero'... Amazon's 'game changing' new store... OPEC is still flooding the world with oil... U.S. shale producers are rushing to hedge...
Longtime Digest readers know Porter has been one of the most outspoken bears on Tesla Motors (TSLA)...
He first recommended shorting the electric-car maker in June 2014 at more than $200 per share. While shares have held up longer than he believed possible (they trade for about $185 today), Porter remains as bearish as ever. As he wrote in the November 21 Digest mailbag...
Regarding Tesla, we've certainly been surprised by its founder's incredible ability to manipulate both the government and the media into supporting his stock's absurd valuation. Never mind that Tesla misses every manufacturing deadline. Never mind that Tesla is losing hundreds of millions every quarter. Never mind that a large percentage of Tesla's revenue comes from nonsense government subsidies. Somehow, like a Jedi knight, Elon Musk can just wave his hand and the media ignores these facts and reports on Tesla's new battery pack (which no one has bought)... or its new roof tiles (which no one has bought).
Sooner or later, that "magic" won't work anymore. Who knows how much longer Musk can keep the charade going? I don't know. But my guess is that Trump won't buy a Tesla... and that the government's outsized role in his businesses will decline.
Regardless, as you may know, we've recommended shorting the company's stock three times: in June 2014 (at $206), April 2015 (at $191), and June 2016 (at $218). In terms of being "right" about the business, the company's current price ($185) is below all of our recommended short entry prices. We also believe the company's growing financial desperation is pretty good evidence that so far, we've been more right than wrong about the direction the company is headed.
Porter has been in good company...
Since he made his original recommendation, several notable investors have shorted the stock, including famed short-seller Jim Chanos.
But last week, a hedge-fund manager most folks have never heard of made headlines with one of the strongest indictments of the company we've seen to date.
"Tesla is a zero"...
So said Mark Spiegel of Stanphyl Capital, a relatively tiny $9 million fund based in New York, at the annual Robin Hood Investors Conference... one of the world's premier conferences. The event featured a virtual "who's who" of the investment world, including Paul Tudor Jones, Ray Dalio, Stanley Druckenmiller, David Einhorn, Jonathan Gray, David Tepper, and more.
In a lengthy presentation, Spiegel explained why he believes the company isn't just worth nothing... it's worth less than nothing. As he explained in his opening slides...
Although my presentation is called 'Tesla is a Zero,' I actually think that because of the debt, the equity in Tesla is worth less than zero...
But of course, a stock price can't be a negative number...
At least not until Nasdaq is run by Mario Draghi or the Bank of Japan.
In short, Spiegel noted there are three big reasons why Tesla shares are worth zero...
The company can't make money today with zero competition – and "massive" competition is coming... It has no meaningful proprietary technology or patents, and its assets are worth much less than its $6 billion of debt... And a bet on CEO Elon Musk is a bet on someone who "can't be trusted... he has a long track record of making hugely misleading statements."
Spiegel then shared more than 150 slides to drive his point home...
He presented dozens and dozens of slides highlighting the flood of new electric vehicles that is already set to hit the market in the next few years. These include vehicles from existing automakers like Chevy, Audi, Mercedes-Benz, Daimler, Porsche, Volkswagen, Jaguar, BMW, Nissan, Ford, Volvo, Hyundai, Honda, Mazda, Mitsubishi, Toyota, Aston Martin, Bentley, Maserati, Peugeot, Citroën, and Subaru... from brand-new electric-car makers like Lucid Motors and Karma Automotive... and even offerings from companies as diverse as vacuum and technology giant Dyson and Chinese tech behemoth Tencent.
In other words, a huge wave of competition is coming for Tesla's electric-vehicle business. Worse, Spiegel notes that unlike Tesla, many of these companies will be able to subsidize the production costs of these vehicles with profits from their conventional vehicles, meaning "pricing pressure on Tesla will be intense."
He then made similar cases for Tesla's other businesses, including batteries, energy storage, autonomous-driving technology, and even high-powered roadside charging stations. Spiegel showed that each of these businesses also faces massive competition from a long list of companies coming to the market soon... and Tesla has no proprietary advantages in any of them.
Spiegel concluded his presentation with an embarrassing laundry list of Musk's misleading statements, lies, and double-talk on topics including personal stock sales, vehicle safety, fundraising and financing, sales numbers, discounts, and the company's recent SolarCity merger, just to name a few.
At the other end of the spectrum...
Online retail juggernaut Amazon (AMZN) is ramping up its fight against brick-and-mortar retailers, and grocers in particular.
Yesterday, the company announced its first "Amazon Go" location – a futuristic convenience store unlike anything that currently exists – will open early next year. As the Wall Street Journal reported...
The Amazon Go store, at roughly 1,800 square feet in downtown Seattle, resembles a convenience store-format in a video Amazon released Monday. It features artificial intelligence-powered technology that eliminates checkouts, cash registers and lines. Instead, customers scan their phone on a kiosk as they walk in, and Amazon automatically determines what items customers take from the shelves. After leaving the store, Amazon charges their account for the items and sends a receipt.
It's too soon to say if the concept will be a success, but some analysts believe it could be a "game changer"... not just for the grocery business, but for retail in general. As retail consultant Neil Stern noted on business website Forbes...
The proposition for the consumer is simple – save time and hassle. The proposition for retailers may be even more compelling – save labor on the biggest component of the store (the front end) as well as improve throughput. In an era in which labor costs are increasing and labor availability is scarce, this becomes an incredibly compelling one-two combination...
This could easily be applied to fashion, electronics, home products and any of the other millions of products sold through Amazon. The company says that the Just Walk Out technology utilizes computer vision, sensor fusion and deep learning algorithms to provide this seamless shopping experience. One can envision a future of Amazon brick and mortar outposts: book stores, beauty stores, drive thru grocery stores and convenience locations all using this technology.
Amazon said it currently plans to open more than 2,000 brick-and-mortar grocery stores, and is also testing two larger concepts: drive-through stores (the first of which could open by year-end), and "multiformat" stores offering in-store shopping and curbside pickup.
In other news, the latest data show OPEC continues to flood the world with crude oil...
Despite announcing a landmark deal to cut oil production late last month, OPEC output hit another record in November.
News service Reuters reports the Saudi-led cartel produced an all-time high 34.2 million barrels per day ("bpd") last month, up from October's previous record of 33.8 million bpd. Notably, Saudi Arabia – the group's largest producer that has promised to make the largest cuts – also produced near-record output in November.
This is potentially important as OPEC meets with non-OPEC producers this weekend in Vienna to expand on last week's deal...
These non-OPEC countries, including Russia, Oman, Bahrain, and Azerbaijan have tentatively agreed to join OPEC's deal and cut their production by a total of 600,000 bpd. But analysts believe this week's data could put the agreement in jeopardy. As Eugen Weinberg, head of commodity research at international banking giant Commerzbank, explained in a note...
Last month saw OPEC producing nearly 1.7 million barrels per day more than the production target that is set to come into force from January... Under these circumstances, it's hard to imagine how OPEC will convince non-OPEC producers to cut production when they meet at the end of the week.
The latest surge in oil prices in the wake of OPEC's meeting could therefore prove to have been too pronounced, and is likely to correct at least to some extent.
In the meantime, U.S. shale oil producers are taking advantage of higher prices...
Bloomberg reports companies have been scrambling to "hedge" their future production above $50 per barrel following the OPEC announcement...
The rush to hedge – locking in future cash flows and sales prices – could translate into higher U.S. oil production next year, offsetting the first output cut by the Organization of Petroleum Exporting Countries in eight years. As such, the producer group could end up throwing a life-line to a sector it once tried to crush.
"Right after OPEC, U.S. producers were very active hedging," said Ben Freeman, founder of HudsonField LLC, a boutique oil merchant with offices in New York and Houston. "We are going to see a significant amount of producer hedging at this levels."
In other words, OPEC may have miscalculated again...
U.S producers that can profitably produce oil at today's prices are now locking in these prices through 2018... meaning a surprising amount of U.S. oil could be coming to the market over the next two years.
More important, this production could now continue regardless of how much oil hits the market... or how low prices fall.
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New 52-week highs (as of 12/5/16): American Financial (AFG), Bank of Montreal (BMO), Berkshire Hathaway (BRK-B), Black Stone Minerals (BSM), CME Group (CME), ProShares Ultra Oil & Gas Fund (DIG), iShares Select Dividend Fund (DVY), Lindsay (LNN), PowerShares S&P 500 BuyWrite Portfolio Fund (PBP), PowerShares High Yield Equity Dividend Achievers Fund (PEY), iShares MSCI Global Metals & Mining Producers Fund (PICK), VanEck Vectors Russia Fund (RSX), and W.R. Berkley (WRB).
In today's mailbag, a subscriber shares his experience with our customer service team... And several more readers weigh in on Porter's insurance stocks. We'd love to hear from you, too. Let us know what's on your mind at feedback@stansberryresearch.com.
"Porter (and everyone at Stansberry), I just had to write to compliment you on your top quality customer service. I have only had to contact your company a couple of times, but it is always very easy and pleasant. When I signed up for Stansberry's Big Trade (on webinar night), because of the volume of transactions my purchase page froze. After almost an hour, I called the 800 number and spoke with a representative. He said to just close out my page and he would handle the transaction. Done.
"About two weeks later, I'm looking at my credit card website and see that I was billed twice. I called customer service, spoke with Alec I believe, and he said he would get it cleared up. Within a couple of days the credit was posted to my account.
"Porter, it is such a pleasure to speak with intelligent people that answer the phone so promptly, and I can clearly understand and communicate with! It must cost you a small fortune to staff your phone system the way you do, and I'm sure having a calling service overseas would be much cheaper, but I thank you so much for such a high-quality customer service experience!" – Paid-up subscriber Dennis Linden
"I guess i was feeling like one of Porter's kids, and knowing he would only want us investing in good insurance companies I have built WRB, AFC, & AXS into my portfolio. And might i add they have all been solid performers... steady and true. Weekends involve plenty of time on the Insurance Value Monitor (as well as some peaks at the Capital Efficient and Trophy Asset classes). Thanks for all that valuable information. Let's just say before i came across your research i was about to invest in a few insurance companies that are at the bottom of your list... Have stuck to choices from the Top 10. Very happy. Thanks again." – Paid-up subscriber Chris K.
"Porter, your insurance recommendations are my personal favorite. Would have NEVER considered investing in insurance stocks because they would probably have never made my radar. They're too boring... they just keep going up up and up. 😉 My kids own insurance stocks in their portfolio, and insurance stocks are about 25% of my retirement account. They've been solid performers so far: WRB up 49.52%, AWH: up 31.54% (I know you stopped out, but I didn't), AXS: up 12.65%, TRV: up 4.43%. Thanks for LEARNING me." – Paid-up subscriber Matt Vestrand
Regards,
Justin Brill
Baltimore, Maryland
December 6, 2016