Does the chart below look like a stock you’d want to own?
Probably not… and yet it’s one of the most widely held stocks in the market.
It’s none other than Tesla (TSLA), the splashy EV maker with the controversial leader, Elon Musk, who prefers the title “Technoking” (two words… “techno king”) over CEO. Shares topped $400 two years ago and have since dropped 55%.
That includes an inauspicious start to 2024 – a 26% slide when many other stocks are hitting all-time highs. Shares got whacked 12% today alone after the company reported earnings and warned that volume growth may be “notably lower” than 2023.
If misery loves company, then Tesla has a whole posse around it.
Automakers in general are struggling, and the newer pure play EV makers that burst onto the scene within the last few years have really taken it on the chin… down about 35% in less than four weeks of trading.
Rivian debuted in late 2021 at an IPO price of $78. It opened trading on Nov. 8 that year 37% higher and peaked that next day at $179.47. You can buy it today under $15 – or more than 90% below its high.
Other EV startups tell a similar though slightly less dramatic tale… going public when EVs were the hottest thing around and enduring a couple of years of price declines.
But aren’t EVs the next big thing? If so, these low prices could be amazing buying opportunities.
The data tells us otherwise… with one possible exception.
Don’t Touch the Newbies
Truth be told, the startup EV makers never ranked very high in my quantitative analysis system.
That makes sense, because they didn’t have enough data to score well. After a couple of years, we now have a clearer data-driven picture… and they still don’t score well:
- Nio (NIO) Quantum Score: 41.4
- Lucid (LCID) Quantum Score: 34.5
- Rivian (RIVN) Quantum Score: 34.5
- Fisker (FSR) Quantum Score: 19
That’s an average score of 32.4, which is way below where I would even consider buying a stock.
And especially when the underlying business is weak, which we can measure by analyzing the fundamentals. In this case, the fundamentals score equally as low. Sales may have grown, but earnings have not. And all but Rivian are weighed down by debt. That’s why Rivian’s Fundamental Score of 41.7 is the highest of the four… but still too low.
Source: TradeSmith Finance and MAPsignals.com
I’m not going to tell you that the EV revolution has fizzled out already. The trend still clearly points to EVs becoming the dominant vehicles on the road… someday.
The question is when. The industry is wobbling a little bit right now. Tesla recently lowered prices in some of its models in Europe and China, where it faces stiff competition from BYD, which now sits on the throne as the biggest EV maker in the world.
In addition, EV sales are generally soft right now. Cox Automotive, which owns Autotrader, Kelley Blue Book, and other prominent brands, reported that 2023 ended with 113 days of EV inventory sitting on dealer lots, compared to just 69 days of inventory for gas-powered vehicles and hybrids.
Automakers continue working to develop better batteries that provide longer ranges, and the charging infrastructure is still being built out.
The switchover to EVs will take time. We know this from the beginning, but stocks sometimes get ahead of themselves anyway. FOMO kicks in, buyers rush in, and stocks get overheated without the fundamentals to back them up.
I would stay away from pure play EV makers right now.
What About TSLA?
Tesla is obviously a hugely successful company with a $600 billion market cap. It makes cool cars that consumers seem to love.
With futuristic-looking Elon Musk at the helm, Tesla also has its hands in solar power, batteries, robotics, and more.
And as we all know, it has been a super-hot stock before. Shares skyrocketed more than 1,000% from the beginning of 2020 through October 2021.
Source: TradeSmith Finance and MAPsignals.com
With a Quantum Score of 51.7, TSLA is currently outside my optimum buy zone between 70 and 85. There’s not much urgency to rush out and buy it today.
But before writing it off completely, look at the other scores and an interesting picture emerges.
We talked about Tesla’s weak price action, and that’s reflected in the very low Technical Score of 32.4. This rating actually makes up more than half of the overall Quantum Score. I checked the full technical breakdown in my Quantum Edge system, and there’s little strength to speak of right now.
The Fundamental Score stands in sharp contrast at an excellent 79.2. The business itself is in good shape with solid sales and earnings growth, a healthy profit margin of 15.4%, and little debt to speak of. That’s impressive for a company pushing the limits of innovation.
This brings up a different way of using my system that I’m referring to as “divergence.” When a company’s technicals are poor but fundamentals are strong to exceptional, you have a pretty high likelihood that the price – and therefore the technicals – will eventually move higher.
We’re crunching and back testing data right now to try to get some tangible parameters, and I will keep you posted.
For now, I wouldn’t feel pressured to buy Tesla immediately, but knowing the company’s history and the underlying business strength, I would consider it for anyone willing to be patient and hold for the long term.
More immediately, other tech companies are killing it. Semiconductors in particular have started the year hot, and we find more stocks in that industry with high Quantum Scores, fundamental scores, and technical scores. And Big Money is pouring in.
In fact, my two newest stock recommendations in TradeSmith Investment Report are both semiconductor stocks. Both hit all-time highs within the last week, and both have seen multiple Big Money buy signals in January – the most recent just yesterday.
And unlike EV stocks, both are zooming to start the year, up 16% on average. (Click here if you’d like to learn more about those or our other recommended stocks.)
That’s where the money is flowing now. And with all that cash set to come off the sidelines in the coming months, I expect it to keep flowing into those stocks and driving prices higher.
Editor, Jason Bodner’s Power Trends
Disclosure: On the date of publication, Jason Bodner held a position in Tesla (TSLA), mentioned in this article.