In 2020, Tesla has been a great stock to own, zooming 424% and splitting its stock 5-for-1 in the process.
Long-term, I think investors with large unrealized capital gains in Tesla (TSLA) should continue to hold the stock, simply because prospects for the company are still bright, as it revolutionizes not only the automobile industry but also the energy industry.
But short-term, I think the stock is priced to perfection right here. We’ve just had a great quarterly report, a massive five-month advance, and then the stock split, which means absolutely nothing as far as the company goes, but is catnip to individual investors. Short-term, I think the stock’s potential downside exceeds the potential upside, even after the big ups and downs of the last month.
So if you’ve got new money to invest and you want Tesla-like profits, I think you should try to find—and invest in—the next Tesla. And how do you identify that stock?
Here’s my short checklist.
- The company serves a mass market—which means it can grow very large.
- The company has the potential to revolutionize an important part of that market.
- The company has the potential to make a large profit in the process.
- The stock is NOT loved by most investors today. And the less it is loved, the better!
- The stock has positive momentum. It doesn’t have to be hot, but it does need to be positive.
Who’s the Next Tesla?
Nio (NIO) A few years ago, China offered massive subsidies to jump-start the country’s electric vehicle industry—and the result was hundreds of home-grown contenders! But those subsidies have since been reduced, and what’s left today is the cream of the crop, like Nio. Second-quarter revenues were $526 million, up 140% from the year before. I think Nio ticks all the boxes, though short-term the stock is high; its 50-day moving average is 30% below the stock’s current level.
Nikola (NKLA) Taking Mr. Tesla’s first name, Nikola is a Utah startup with dreams of building electric semi trucks powered by hydrogen fuel cells. Technically the idea has a lot of merit; the challenge is overcoming the established fossil-fuel-centric order. In the meantime, noting the appetite for Tesla’s Cybertruck, the company is taking reservations for its own (non-hydrogen) electric pickup truck, one that is far more conventionally styled than Elon Musk’s vehicle. Newly public this year, the stock’s chart shows some serious buying in May and June, through the initial strength has faded and then some, especially after a damning short-seller report emerged last week. In my mind, the company has some major obstacles to surmount (it has no revenues yet), but success is possible. And the company is definitely not loved by the masses; it’s hardly known.
Zoom Video (ZM) Zoom Video checks almost all the boxes. Mass market. Revolutionary. Capable of big earnings (the second quarter saw revenue of $664 million, up 355% from the year before and EPS of $0.92, up 1,050%). And (very) positive momentum; the stock is up 595% this year! The one box unchecked is that of low public opinion. Everyone knows Zoom and many people love Zoom, which is one reason the stock is up. Additionally, I don’t see any real barriers to entry.
Roku (ROKU) Roku might be called the gatekeeper to the streaming media-verse, as its digital media players enable the playing of content from any provider on any device. The mass market is global and growing. Revenue growth (up 42% in the second quarter) is good but not exceptional. The barrier to entry is substantial. The chart is healthy, not overextended. And public/investor opinion is good, neither hot nor cold.
Teladoc (TDOC) Accelerating revenue growth is one of my favorite metrics; it tells you that business is improving at an increasingly fast pace, which makes it hard for analysts to adjust their estimates upward fast enough. That’s the case at Teladoc, the provider of on-demand health care services over the internet. Revenues in the latest quarters grew 27%, 41% and 85%—accelerating. The service is revolutionary in an industry that sorely needs it. The chart is healthy, not overextended. And public sentiment is good, but not gaga.
Spotify (SPOT) The streaming music (and more) service definitely addresses a mass market and it has a healthy chart. But it’s evolutionary, not revolutionary. And it’s not growing fast enough. In the latest quarter, revenues were up just 12% from the year before—decelerating.
Virgin Galactic Holdings (SPCE) If all goes well, Sir Richard Branson will be on his company’s first flight to space that includes paying passengers sometime next year. Revolutionary? Absolutely! Big potential? Yes! Big earnings potential? Eventually—the long-term goal is ultra-fast transcontinental travel, like New York to Tokyo in two hours. Obviously, there are major hurdles. But the company is well funded and has experienced management, so it’s quite possible. As for the stock, it was strong in July, peaking at 27, and has cooled off since in a normal correction so sentiment has cooled as well; many people aren’t even aware of the company.
Curaleaf (CURLF) Curaleaf is the biggest marijuana company in the U.S., and because the barriers to entry in the industry are not technical, but regulatory, it’s the odds-on favorite to remain the leader. Second-quarter revenues were $117 million, up 142% from the year before, and the company is expected to have positive earnings in 2021. The chart is healthy, but the sector as a whole peaked, so I think it needs more time to cool off. And sentiment among Americans as a whole is varied, with a third of the population still not in favor of legalizing the industry and a very large percentage unaware of the company.
Looking at the charts as much as anything (because buying smart is the first step to long-term gains), Teladoc (TDOC) and Virgin Galactic (SPCE) are my top two candidates to be the next Tesla.