Few public companies are more polarizing than Tesla (TSLA) these days. Whether it’s due to founder Elon Musk’s eccentric and often brash personality, his SEC-violating Twitter account or the company’s take-no-prisoners attempt to revolutionize the auto industry (and put car dealerships out of business), Tesla evokes plenty of strong opinions. You either love the company or you hate it. And investors either love Tesla stock or hate it. With that in mind, now is a good time to ask what should you do with TSLA: buy, sell or hold?
The answer can vary wildly depending on who you ask. So instead of trying to answer it all by myself, I will present the case for each argument by sampling from others who have strong opinions on Tesla stock.
First, some context. TSLA hasn’t been looking too hot of late. It’s down 18% year to date, which is a stark contrast to the 11% run-up in the S&P 500. And the stock just broke below four-month support at 287 after slashing prices and closing stores to raise more cash (and despite the fact that the company just released its much-anticipated new “affordable” Model 3 cars). To some, the dip into the 270s represents a buying opportunity in an outstanding company that’s still growing.
Cabot Stock of the Week brings you:
Cabot Stock of the Week brings you:
Why You Should Buy TSLA Stock
In fact, Forbes contributor Ken Kang just made that very case about TSLA. Here’s what Kang wrote on Monday in an article titled, “Buying More Tesla for My Bear Market Portfolio”:
“Everyone wants to buy low and sell high. But not a lot of people can bring themselves to do it because when stocks are cheap, there is usually something to be afraid of.
“This time the fear is about how Tesla plans to sell their cars. Car industry analysts think the online car market is too small to support Tesla’s ambitious sales targets. They would have a point if the Model 3 was like other cars. The fact that 450,000 people made a $1,000 deposit on a Model 3 sight unseen says the Model 3 is not like any other car.
“I would like to hear more about how Tesla plans to service their cars. However, trading sales reps for a lower price is a good idea worth testing in my book. I have confidence that management will make adjustments if needed. This is not going to be the reason Tesla fails as so many journalists suggest. That’s why this is a good time to add to my position.”
Why You Should Sell TSLA Stock
So, there’s the case for buying Tesla stock on the cheap. But with the stock plummeting right now, the easier case is to sell TSLA. And that’s essentially what Barclays—previously a Tesla stock bull—is suggesting people should do now after it cuts its price target on the stock to 192.
Here’s what the big investment bank wrote in a research note released on Tuesday (which contributed to TSLA’s 2% decline yesterday):
“Much of the bull narrative has rested on Tesla being the next Apple, selling high-volume [electric vehicles] at a premium price point and at high gross margins, in part aided by a unique branded retail presence — a narrative we see as undermined by the recent price cuts and closing of most of the stores.”
The note goes on: “Contrary to the bull arguments, we believe the sooner-than-expected announcement of the $35K Model 3, rather than reflecting dramatic progress on manufacturing and distribution costs, likely reflects the need to replenish cash after the convert repayment, perhaps exacerbated by the weak first two months of U.S. sales.”
So, that’s one (highly influential) case for selling Tesla stock.
Why You Should Hold TSLA Stock
For the “Hold TSLA” case, I’ll keep it in-house and use a recent excerpt from Tim Lutts, Cabot’s CEO and Chief Analyst of our Cabot Stock of the Week advisory. TSLA has been very good to Tim – he recommended the stock to his Cabot Stock of the Week subscribers way back on Dec. 29, 2011; it’s up 905% since then!
And while Tim still likes TSLA stock as a long-term investment, he recommends merely holding onto it now if you already own it. Here’s what Tim had to say about TSLA stock in his most recent Cabot Stock of the Week issue:
“I’ll continue to hold as long as I believe the stock has great growth potential. Certainly the company is still growing, and improvements in fundamentals alone can eventually drive the stock higher. But what will be harder to grow is public perception of the company. Everybody already knows about Tesla, despite the fact that Tesla has never done any paid advertising to sell its cars. So the only way for perception to improve is for the public’s image of Tesla (and Elon Musk) to improve. Maybe fewer impromptu tweets? HOLD.”
TSLA: Buy, Sell or Hold?
Which is the right answer on what to do with TSLA: buy, sell or hold?
Well, I’m probably biased since he’s my boss, but I’d go with Tim’s sober recommendation to hold. If you already own TSLA stock, you shouldn’t get rid of it just because it’s had a bad couple months (on the heels of an improbably good stretch during the fourth-quarter market correction, it should be noted). And if you don’t own the stock yet, now is not the time to buy—not while it’s fallen below a key technical support level.
There’s still a lot to like about Tesla stock’s potential in the years to come. But right now it’s going through a rough patch.
If you want to know which stocks Tim does recommend buying right now, you should subscribe to Cabot Stock of the Week. It’s aptly named—he recommends a new stock every week, no matter what (even during the recent market correction!). The Cabot Stock of the Week portfolio currently contains 17 stocks, eight of which are rated “Buy.” Those 17 stocks have an average gain of 87%!
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Timothy Lutts heads one of America’s most respected independent investment advisory services. Each week, Tim personally picks the single best stock in his exclusive Cabot Stock of the Week advisory. Build your wealth and reduce your risk with the top stock each week for current market conditionsLearn More