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☕ Tesla’s pulling an Apple, Palantir, the Fed and the next big investment theme

Oct 23, 2024

Good morning!

I began my day with two feature length interviews from the NYSE that I think you may enjoy a darn sight more than hearing me blather on about the markets.

My host, the super-smart Kristen Scholer, asked several right-on-point questions related to market mood, where I see the money moving, elections and more. Of course, we talked about Tesla, Coke and two leading defense stocks, too.

I also brought up Palantir along the way and why it’s a great example of a small company that’s “going big.” Especially now.

Perhaps coolest of all, we chatted for the first time on camera about an emerging investment theme I call, “customizable medicine” and why I see that as the next great investing frontier.

There were two segments.

One about 30 minutes ahead of the opening bell… (Watch)

And one just after the opening bell… (Watch)

Now and before I let ‘cha go, I do want to spend a moment on Tesla.

Team Musk reports after the bell in what just may the most anticipated earnings report of the season.

I’m getting a lot of questions about whether to buy ahead of time or afterward.

“Yes.”

Tesla has returned a paltry 2.17% over the past year which sounds terrible right up to the point when you realize that it’s turned in 1,171.20% over the past 5 years and 1,305.52% over the past 10. The S&P 500, by comparison, has turned in 94.67% and 202.65% respectively.

This is a teaching moment of epic proportions.

Earnings are completely rigged and manipulated to reflect a more favourable short-term picture to those with the attention span of a gnat. Social media and clickbait oriented news doesn’t help much.

For instance, companies may use accounting tricks like one-time write-offs, revenue recognition changes, or stock buybacks to boost their reported earnings, even if their underlying business fundamentals are weak.

A very different picture emerges when you focus on a 3-5 year horizon and start to incorporate factors like revenue growth, market share, and competitive advantage, all of which can provide a more accurate picture of a company's long-term potential.

Not surprisingly and more often than not, profits rise to the top.

Wall Street analysts missed the iPhone, missed Amazon, missed Nvidia’s shift to GPUs and AI… which is why they’re also missing Tesla. They repeatedly frown on anything they can’t model in their posh offices while pretending it doesn’t exist unless they’re spoon-fed like a 2 year old.

Good thing we know better!

Cars are but a tiny – and getting tinier – portion of what Tesla does.

The situation reminds me of 2014 when Apple introduced services, and the analyst community slammed Team Cook for doing so. A “distraction” said one. “Never amount to much,” said another. “Cook should stick to phones,” said a third.

Fast forward.

Apple’s services segment may produce $100B+ this year and is second only to the iPhone in terms of Apple’s overall revenue. Margins are, of course, jaw-dropping.

I see Tesla doing much the same thing.

Licensing, robotics, AI, data, energy trading, finance, storage, distributed generation and more are all going to come into their own within the next few years. The charging network is an annuity.

My guess is that cars may account for less than 60% of Tesla’s overall sales revenue within the next 5 years and that everything else will come up sharply… with higher margins and even better profitability, of course.

That’s why I continue to see Tesla 3-5X within the next 5 years.

Here’s a quick image that puts what I’m saying in perspective.

Pay particular attention to the FCF (Free Cash Flow Growth), Net Cash Position and Energy & Storage Revenue… all of which are bright green and building just the way Apple’s services did a decade ago.

Source: Visualizing the world of investing

And before you get after me for valuation, just remember something we’ve talked about many times over the past few years… classic valuation models are busted.

That’s because they rely on like price-to-earnings (P/E) ratios and earnings per share (EPS), are no longer effective for analyzing tech companies because these methods were developed during a different era when the economy was more focused on industrial and consumer goods.

In the modern economy, many tech companies prioritize growth and market share over short-term profits, which makes them difficult to value using traditional accounting methods.

For example, companies like Amazon and Uber have often posted negative earnings, but still command high stock prices due to their strong growth prospects and dominance in their respective markets. Nvidia, too.

To a point I just made during my keynote in Orlando this past week…. the markets are adapting to the world we will live in and unless you adapt your thinking, your methods and your approach, you and your money will get left behind – no two ways about it.

Anyway, that about does it for me.

If you’re comfortable with your investing approach, great. But if you’re wanting better results, a smoother ride and less stress, I’d like to toss my hat in the ring. Learn more.