Sustainable Investing

Kirk Spano

"World's Next Great Investing Columnist" --MarketWatch

Tesla (TSLA) Set For A Beat?

Perhaps the company most tied to the sustainable investing trend is Tesla (TSLA). Even more than solar, which has long been the go to for tracking sustainable development, Tesla is a lightning rod for bulls and bears alike. 

If you are skeptical of climate change, I'd wager you are skeptical of Tesla. If you think the world should get rid of fossil fuels yesterday, Elon Musk and Tesla's EVs are your heroes.

My History Owning Tesla Stock

I first owned Tesla shares years ago when the shares were still under $20. Because I'm so smart, I sold those shares in the $90s. 

I have returned to trade Tesla shares a few times since. Each time I have been a little less smart and simply made money on the trade. the most recent was a few months ago. 

In late November 2018, I wrote Why I'm Selling Tesla Shares over on Seeking Alpha. Of course, I had to have bought Tesla shares first. I did that when Tesla had fallen to about $270 from a high near $380 in August 2018. In fact, I had bought Tesla shares only in October. What caused me to sell for a quick $70 gain in about 5 weeks? 

The short story was that the stock got ahead of itself from a valuation standpoint and it was not likely to cross into long-term profitability. The bond that the company just paid from cash was also likely to cause some dilution. That  dilution did not occur though and probably won't due to cash flows. It might happen as part of a deal, or deals, to finance new factories. 

The stock has fallen though, to a recent low of $260.42, before rallying in recent days to $288.50. Why the rebound? Is it correlated to the market rally or is there something else? 


Is Tesla About To Beat Estimates? 

Bloomberg has developed an interesting tool for tracking Tesla Model 3's rollout. Their tracking method indicates that Model 3 production might have recently jumped to 80,000 for the period versus an estimate by research firms of 64,400 that research firm Visible Alpha supplied. 

The idea that Tesla could be on the road to a beat and maybe several in a row is important to consider right now. If Tesla can become sustainably profitable ahead of schedule, it could become one of the 3 or 4 largest car companies very quickly. Already, Tesla new car sales are leaders in virtually every market they enter.


However, there have been delivery problems very recently that could cause a very unprofitable quarter. Analysts estimate that Tesla could have negative free cash flow of around a quarter billion dollars. Since that is the expectation, that is also the bogey to beat. What if Tesla is just barely underwater instead of drowning? 


Simple Strategies For Owning and Trading Tesla Shares

Now, I am not trying to convince anybody to own Tesla shares just yet. It's a very volatile stock and I think it will fall when the rest of the stock market falls. Correlation is high for almost everything. Especially beta driven stocks. 

To own a long-term position in Tesla, at this point, I would be waiting for the correction that many of us here expect soon.

However for those who want to trade shares, I think buying a few calls makes some sense. I like the May $300 calls for about $19-20 per call. If the stock rallies in the next few weeks, it has pretty easy upside to around $315 if it gets going. It could break through resistance and then fill a gap and shoot to around $340.
I would sell about half my calls with a share price around $315 and that should put me on a freeroll. I would sell the rest when shares were approaching $340, unless of course there's so much money flowing in I'm convinced to hold a wee bit longer. The next big levels are up in the $370s.

If Tesla doesn't show something positive to rally off of this week, then you lose only a small amount. If it does rally into the $300s for a minute or two, then you have some profits to put into your "saving up for Tesla shares" piggy bank.

Kirk Spano covers Sustainable Investing as one of the original contributing analysts at FATRADER. Named the "Next Great Investing Columnist" at MarketWatch, Kirk has been getting the jump on secular trends for over 20 years, and now sees investing in alternative energy, smart grid, EVs, agriculture, healthcare and water as the most likely place to make outsize profits in coming decades.
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