Humble Student Of The Markets: June 2021
As I noted earlier, if we want companies to behave better in their interactions with society, customers and employees, we have to make it in their financial best interests to do so, buying products and services from companies that treat other stakeholders better and paying higher prices for their shares. Most of the people are likely to mark a retail shopping website as a favorite if they are happy with the overall services. Research universities in the United States are entities built without a central focus, where the stakeholder group being served and the objective is different, depending on who in the university administration you talk to, and when. In my view, a much healthier discussion would be centered on creating more transparency about how corporations treat different stakeholder groups and linking that information with how they get valued in the market. From Musk's Twitter escapades with the SEC, to talk about electric lawn blowers to concerns about a debt death spiral, the company has managed, yet again, to get in its own way, and this time, it has paid a price in the market, as its boutiques near me price tests lows not seen in a couple of years.
Debt load and Distress: When Tesla chose to add to its debt burden by borrowing $5 billion in 2017, I argued that there was no good reason for Tesla to borrow money, since money losing companies gain no tax benefits and debt put growth potential at risk. SEC Oversight: If there has been a recurring story over the past year, it has to do with the aftermath of Elon Musk's "funding secured" tweet, which led to a SEC investigation and a threat of sanctions on the company. In June 2019, that debt, now close to $14 billion, is revealing its dark side, as a bond price plunge and ratings downgrades threaten to put Tesla's growth story at risk. If we close below $30.25 on the QQQQ, we could retest the lows once again. Since the stock was trading at close $360 at the time of the valuation, I concluded that it was significantly over valued.
Its time for traders to think if this a good time for investing or not and what kind of trading strategy to follow. The recent losses on Wall Street pushed all three benchmarks into correction territory during trading on Thursday, although the market has not yet closed, and so there's no offical correction yet. Always cut your losses small and let your profit run till a new wave is formed. Improving Profitability: While Musk's tweets about Tesla turning earnings positive may have been premature, the company has moved down the pathway to profitability, reducing operating losses and with R&D capitalized, perhaps even turning the corner on operating profitability. That would be the wrong lesson, since almost all of the drama in this episode, from setting the target (5000 cars/week) to the constant tweets about whether the targets would be met, was generated by Elon Musk, not the market. While the company came to a settlement wit the SEC, that settlement requires restraint on the part of Musk on future disclosures to the market (especially in the form on tweets), and restrain is not a Musk strong point. I think that we are making strides on the first, with better information disclosure from companies and CSR measures, and I hope to help on the second front by connecting these disclosures to intrinsic value.
There are plenty of terrible energy stocks, but reduced share prices have also paved the way for opportunities. The Conspiratorial Twist: There is a third twist, and it does require a conspiratorial mindset. However, there is no doubt that e-commerce has a bright future ahead. However, excess belly fats will not help to secure these organs more but may rather cause problems in the long run. XON is a strong buy below $20 and I like to buy more around $18. Think of buying the business, not the stock: The old adage that you are buying a piece of a company, not a share of stock, is particularly relevant when you make a bet like this one. If you are wondering how much can happen in a year, you obviously don't follow Tesla, since the company is a magnet for newsworthy events. In my last valuation of Tesla, set in June 2018, I considered possible, plausible and probable valuations for the company.