What Is the Ultimate Trump Trade?
We are falling head over heels in love with Tesla (NASDAQ: TSLA) — the ultimate Trump trade in our opinion.
Tesla’s stock is up 66% this year and nearly 89% since the U.S. election, surpassing General Motors to become the most valuable U.S. automaker.
To the extent that President Trump’s economic nationalism prioritizes the creation of U.S. jobs and valuable, domestic high-tech manufacturing industries, we believe Tesla stands at the epicenter of that.
The company employs 25,000 workers in the U.S. and could easily double that as it ramps up production for its new Model 3 and expands its manufacturing facilities in New York and Nevada. About 83% of Tesla’s employees, who are spread across its car and battery manufacturing plants, are in the U.S.
The strategic relationship between Elon Musk, Peter Thiel and the Trump administration is an important development that should support Tesla’s business activities.
Tencent, Asia’s tech giant, has purchased a 5% stake in the company, which we also view positively.
Recently reported results give us further confidence in the company’s operations. The company expects vehicle delivery growth of 61–71% for Model S and Model X in the first half of 2017 compared with the same period last year, and the Model 3 program is on track to start limited vehicle production in July and steadily boost production from there.
To quote Victor Hugo, “Nothing is more powerful than an idea whose time has come.” Mass adoption of electric vehicles is coming and much sooner than most people realize. Tesla is at the vanguard of the world’s inevitable shift toward a sustainable energy platform.
From a technical perspective, the price consolidation from 2014 is ending and supports a strong trending move.
Barriers Mean Nothing…
Jesse Livermore, one of the greatest speculators of all time, believed that when a stock crosses 100 or 200 or 300 for the first time, the price does not stop at the even figure but goes a great deal higher. “It was an old trading theory of mine… So that if you buy it as soon as it crosses the line, it is almost certain to show you a profit. Timid people don’t like to buy a stock at a new record high. But I had the history of such movements to guide me.”
We have been timid thus far but will follow Livermore’s advice. With more than a quarter of Tesla’s float sold short (31 million shares and an estimated 7.7 days to cover), “stormy weather in Shortville” should continue for a while.
We can easily imagine Tesla’s stock doubling in price over the next two–three years.
We believe Tesla is the quintessential American brand and Elon Musk embodies the cult of personality that investors are attracted to in the final stages of the bull market.
The “Tesla Bears Club” will only grow more frustrated despite their (arguably rational) arguments.
Alex Potter, who covers Tesla at Piper Jaffray, describes it thus (emphasis added):
Tesla’s products have a captivating impact on consumers and shareholders alike. In the minds of its customers, employees and shareholders, Tesla isn’t just another company. Tesla engenders optimism, freedom, defiance and a host of other emotions that in our view, other companies cannot replicate. As they scramble to catch up, Tesla’s competitors only make themselves appear more desperate. With this in mind, even if the Model 3 production launch goes badly, we think customers (and more importantly shareholders) will withhold judgment.
Sell Tesla only when Elon Musk is crowned as Time magazine’s “Person of the Year.”
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