Tesla (TSLA) Stock Might Be Expensive, Stay Cautious

McLain Capital recently released its Q2 2020 Investor Letter, a copy of which you can download here. The fund posted a return of -15.4% for the quarter (net of fees), underperforming its benchmark, the S&P 500 Index which returned 20.5% in the same quarter. However, you should check out McLain Capital’s top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash.

In the said letter, McLain Capital highlighted a few stocks and Tesla Inc. (NASDAQ:TSLA) is one of them. Tesla Inc. (NASDAQ:TSLA) is an electric vehicle and clean energy company. Year-to-date, Tesla Inc. (NASDAQ:TSLA) stock gained 253.0% and on July 28th it had a closing price of $1,476.49. Here is what McLain Capital said:

“Tesla Motors (TSLA) : We can’t not include Tesla here! With it’s stock up over 200% YTD, despite being perenially unprofitable, Tesla now sports an enterprise value over $250bln, closing ground on the world’s largest automaker in Toyota (a $290bln enterprise value) despite making only 3% of the number of vehicles that Toyota produces. For a company that still sports a CCC credit rating, makes cars in a tent, has seen a revolving door in the Chief Accounting Officer & General Counsel positions among others, and uses some arguably aggressive accounting practices, it’s quite shocking that Mr. Market believes Tesla to now be worth more than blue-chips like Exxon and Disney. Assuming Tesla will trade 15x earnings in 2020 (a higher multiple than any current automaker) and is able to then run 5% net margins (in line with the healthier auto-makers Toyota & VW), Tesla must grow top line revenues by 43% annually (a factor of 35x current levels) for shareholders to earn a 10% IRR from its current share price of $1400 & forward P/E of over 330x. These assumptions would require Tesla to earn approximately $850bln in 2030 revenue, roughly triple Toyota’s 2019 sales. Sounds like a layup, right? Furthermore, if you account for the dilutive effects of stock based compensation as well as continued equity & debt issuance to fund the capex for this hypothetical growth, the math gets worse.”


Yesterday, we published an article revealing that Tesla Inc. (NASDAQ:TSLA) is the number one automotive stock among hedge funds.

In Q1 2020, the number of bullish hedge fund positions on Tesla Inc. (NASDAQ:TSLA)  stock increased by about 20% from the previous quarter (see the chart here), so a number of other hedge fund managers believe in Tesla’s growth potential. Our calculations showed that Tesla Inc. (NASDAQ:TSLA)  isn’t ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. You can subscribe to our free enewsletter below to receive our stories in your inbox:

Disclosure: None. This article is originally published at Insider Monkey.