Why Tesla's stock is down; Day Traders Go Back to Their Day Jobs as Stock Market Swoons; As COVID Hit, Washington Officials Traded Stocks With Exquisite Timing; Near miss yesterday
1) Tesla (TSLA) reported third-quarter earnings after the close yesterday...
Revenue, operating income, free cash flow, vehicle production, and vehicle deliveries hit all-time highs, but the stock is down this morning because results slightly trailed investors' high expectations and due to concerns about future demand. Here's an article from the front page of today's Wall Street Journal about it: Tesla Cuts 2022 Vehicle-Delivery Target, but CEO Musk Says Demand Remains Strong. Excerpt:
Tesla cut its full-year growth expectations as it adjusts vehicle-shipping patterns, but Chief Executive Elon Musk brushed off worries about weakening demand amid recession fears.
The company expects to "sell every car that we make for as far into the future as we can see," Mr. Musk said as Tesla reported near-record quarterly profit.
I think the stock is selling off for two reasons...
First, though the stock has been cut in half over the past year, Tesla still has a nearly $700 billion market cap, nearly four times that of Toyota Motor (TM) and 14 times that of General Motors (GM) or Ford Motor (F).
Yes, Tesla is a great company with a bright future, but valuation matters, as this WSJ Heard on the Street column notes: Tesla's Valuation Doesn't Add Up Today, Never Mind $4.4 Trillion Tomorrow. Excerpt:
Tesla had a good third quarter, but this is a stock for which nothing other than spectacular is good enough. Case in point: Chief Executive Elon Musk's new stretch valuation target is "Apple and Saudi Aramco combined" – about $4.4 trillion.
After the bell Wednesday, the electric-vehicle pioneer reported $3.7 billion of operating profit on $21.5 billion of revenue. While both were new records, both also came in shy of consensus estimates that had already been cut following a disappointing quarterly sales report earlier in the month. Shares fell in after-hours trading.
Tesla set itself up for the fall. It struggled in the second quarter due to Covid-related shutdowns in Shanghai but insisted that it might still be able to hit a target of increasing sales by 50% this year. That raised expectations for the second half. After a merely solid third quarter, all the pressure is now on the fourth quarter, which Mr. Musk said on a call with analysts could be "epic."
I suspect a second reason for the stock's sell-off relates to what I wrote in my October 7 e-mail, when I quoted two friends who said CEO Elon Musk is going to need to sell $5 billion to $15 billion of stock the moment he's allowed to after Tesla reports earnings (i.e., today and the next few days) to fund his purchase of Twitter (TWTR) next week.
I'll repeat my conclusion then:
To be clear, I think the vast majority of investors should never short, for reasons I outlined in my September 23 e-mail. But for those who do short, this is a very interesting setup.
Despite the crashing share price, Tesla still trades at nearly 40 times earnings – more than twice that of the average S&P 500 stock.
It's important to remember that valuation matters, particularly in this market.
And that's why stocks like the ones my colleague Herb Greenberg is recommending in his Empire Real Wealth newsletter are doing so well...
The Empire Real Wealth portfolio is up 7% since launching last month – dramatically outperforming overvalued market darlings like Tesla, which is down 27%, and the S&P 500, which is down 1%.
In fact, the October issue of Empire Real Wealth comes out tomorrow after market close with another stock he'll be adding to the portfolio. It's a world-class, blue-chip stock that, like Tesla, trades at a premium to the market. But in this case, it's completely justified, as this stock has a long history of rewarding shareholders. To make sure you get this brand-new writeup the moment it's ready, click here to learn how to get a risk-free, 60-day money back trial.
2) Two other articles on the front page of today's WSJ caught my eye...
The less speculation and foolishness in the markets, the better, since it always hurts the most clueless and vulnerable investors the most, so this is good to see: Day Traders Go Back to Their Day Jobs as Stock Market Swoons. Excerpt:
The pandemic day-trading boom has gone bust.
A swooning stock market and high inflation have sapped individual investors' enthusiasm for buying and selling stocks. That was on display in earnings reports and financial disclosures from some of the biggest retail brokerages in recent weeks.
The average daily number of retail trades handled by Charles Schwab (SCHW) fell to 5.52 million in the third quarter, the lowest level since it acquired TD Ameritrade in late 2020. At Morgan Stanley (MS) retail traders placed an average of 805,000 trades a day in the third quarter. That was down 16% from a year earlier and the lowest level since the investment bank bought E*Trade Financial in late 2020.
Those activity levels are well off highs notched at the zenith of the meme-stock era, when individual investors drove rallies in the share prices of companies including GameStop (GME). In the first quarter of 2021, Schwab reported 8.41 million daily average trades, while Morgan Stanley reported 1.62 million.
3) What a total disgrace! Congress needs to act quickly to rein in not just itself, but every senior person in government: As COVID Hit, Washington Officials Traded Stocks With Exquisite Timing. Excerpt:
Federal officials working on the government response to COVID-19 made well-timed financial trades when the pandemic began – both as the markets plunged and as they rallied – a Wall Street Journal investigation found.
In January 2020, the U.S. public was largely unaware of the threat posed by the virus spreading in China, but health officials were on high alert and girding for a crisis.
A deputy to top health official Anthony Fauci reported 10 sales of mutual funds and stocks totaling between $157,000 and $480,000 that month. Collectively, officials at another health agency, Health and Human Services, reported 60% more sales of stocks and funds in January than the average over the previous 12 months, driven by a handful of particularly active traders.
By March, agencies across the government were working on wide-reaching measures to prop the economy and markets. Then-Transportation Secretary Elaine Chao purchased more than $600,000 in two stock funds while her agency was involved in the pandemic response and her husband, Republican Sen. Mitch McConnell, was leading negotiations over a giant, market-boosting stimulus bill.
And as the government was devising a loan package aimed specifically at helping companies including Boeing and General Electric, a Treasury Department official involved in administering the aid acquired shares of both companies.
Federal officials owned millions of dollars of stock in industries most affected by the pandemic and the government's response. About 240 officials at health agencies and at the Pentagon, a key player in the vaccine rollout, reported owning a total of between $9 million and $28 million in stocks of drug, manufacturing and biotechnology companies that won federal contracts related to COVID-19 in 2020 and 2021, the Journal's analysis found.
Nearly 400 officials across 50 agencies reported owning stocks in airline, resort, hotel, restaurant, and cruise companies in early 2020, the review found.
By March, every major agency was drawn into the pandemic response. That month was the most active for trading by officials across the federal government, including at HHS, in the Journal's analysis of financial disclosure forms for about 12,000 officials spanning 2016 to 2021. Federal officials reported more than 11,600 trades that month, 44% more than in any other month in the analysis.
4) Years ago when I started climbing epic peaks like the Matterhorn, the Eiger, and the Nose of El Capitan, my mom freaked out and begged me to stop before I killed myself.
I explained two things to her...
First, I don't have a death wish. The things I'm doing aren't as dangerous as they appear, and I take many precautions to minimize risk, most important by only going into the mountains when I'm roped to a professional guide (talk about alignment of interests!).
Second, I told her that if she's going to worry, by far the single most dangerous thing I do is ride my bike on the streets of Manhattan every day.
I got a good reminder of that yesterday...
I was cruising down Fifth Avenue on my way to a lunch meeting when suddenly my rear wheel locked up and I had to fight to control my bike as it skidded to a complete stop in the middle of heavy traffic. I could have easily been rear-ended or fallen under the wheels of a passing vehicle, but I stayed upright, hopped off, and carried my bike to the sidewalk.
When I examined my wheel, this is what I saw:
My tie had fallen out of my jacket pocket and jammed in my disc brakes! By the time I pulled it out, my favorite tie was a total loss...
It's sort of scary to think that something so random could have led to a very bad outcome...
This comes on the heels of one of my friends getting in a bike accident last month. I can't share the details right now, but he was seriously injured and is still feeling the aftereffects.
In light of these incidents (and many more I could share), I wanted to share the below excerpt on bike safety from my book, The Art of Playing Defense.
Stay safe out there!
Taking Smart Risks and Investing in Safety
While I do plenty of risky things, I'm very conscious about the level of risk and think carefully about how to reduce it.
Biking
By far, the single most dangerous thing I do is ride my bike almost every day on the streets of Manhattan, come rain, snow, or shine. I like the exercise, it's a fast way to get around, and I'm never late because I know, to the minute, exactly how long it will take me to get to my destination since there's no chance of getting stuck in traffic or on the subway.
But it's risky. While there have been some improvements like bike lanes on a few streets, Manhattan isn't a bike-friendly place. I'm always dodging pedestrians, cars, trucks, and buses – and one mistake can be fatal.
This really hit home when my daughters' pediatrician (for a decade when they were younger) was riding across Central Park a year ago on the narrow, two-way road on 97th Street. It was only a half-mile from his apartment to his office, but he slipped on a patch of ice and fell under a passing school bus, which killed him instantly. Here's a memorial to him that I pass by every day:
The risk isn't high enough to scare me off my bike, but it's led me to take a number of steps:
I invested in a bike with disc brakes (and keep it well maintained), so I can stop on a dime, even when it's wet.
I spent $150 on two super-bright blinking lights, one on my front handlebar and the other on my seat stem, facing backward.
I invested another $200 in a Lumos helmet , which has a series of super-bright blinking lights embedded in the front and back of the helmet. In addition, if it detects me braking suddenly, two more big red lights in the back light up to warn vehicles behind me – just like when you hit the brakes of your car.
With all of these lights blinking madly, day and night, I look like a Christmas tree, but they make me much more visible to both vehicles and pedestrians, which I'm convinced has saved me from collisions on more than one occasion.
I can't say I always stop at red lights or stop signs, but I always slow down when approaching an intersection and look both ways to ensure I don't hit any pedestrians or get hit by a car coming from the cross street.
I generally won't bike farther south than 40th Street (about two and a half miles from my apartment on 98th Street) because the streets get more narrow, crowded, and unfamiliar. If I have to go farther south, I take the subway instead.
Regarding what I wrote earlier about monitoring risks and making adjustments when conditions change, while I do sometimes ride in the rain or snow, if the roads are really slippery, I generally won't ride.
Best regards,
Whitney
P.S. I welcome your feedback at WTDfeedback@empirefinancialresearch.com.