April 30, 2020 Update: Tesla stock slipped during regular trading hours today despite the surprise profit the EV maker posted on its first-quarter earnings report. The automaker reported earnings of 9 cents per share or $16 million compared to the GAAP loss of $4.10 per share it posted in last year’s first quarter. On an adjusted basis, Tesla reported $1.24 per share in earnings, compared to the year-ago adjusted loss of $2.90 per share.
Sales increased from $4.54 billion in the year-ago quarter to $5.99 billion in the first three months of 2020. Tesla stock initially climbed by more than 9% following the earnings release Wednesday afternoon. However, the shares struggled during regular trading hours today as the stock market as a whole slipped into the red.
Tesla stock downgraded amid negative oil prices
April 22, 2020 Update: Bank of America analyst John Murphy downgraded Tesla stock to Underperform just weeks after upgrading it. He does think the company is a leader in electric vehicles, but he also expects it to experience production issues.
He also predicts a spike and burnout pattern for Tesla’s new vehicles and continuing cash burn from low deliveries and production, high costs and construction of new factories. He also expects the automaker to face competition from other companies as they release new EVs.
BofAML has a $485 price target on Tesla stock, which suggests an approximately 30% decline in the shares.
GLJ Research analyst Gordon Johnson has an even more bearish view of Tesla stock in light of the negative oil prices. He expects the shares to plunge to $70 due to low gas prices, competition and slowing growth.
He believes Chinese retail investors have been driving Tesla’s rally since the company opened its factory in Shanghai. He also believes that even though the automaker has been selling a lot of cars in China, it won’t last. He pointed out that the company has launched eight new car variants over the last two years, but during that timeframe, its sales have only increased 5.5%.
Tesla jumps on Buy initiation, China sales
April 15, 2020 Update: Goldman Sachs analysts initiated coverage of Tesla stock with a Buy rating and $864 price target this week. They like the automaker’s long-term secular growth in the electric vehicle market. Analyst Mark Delaney expects Tesla’s “early-mover advantage and technology cadence” to enable it to continue to hold a solid share of the market and maintain strong gross margins.
He believes Tesla has a significant lead in electric vehicles and expects the Model Y to help the company gain more traction in the SUV market. He also believes the automaker is attractively valued based on its growing revenue. He also likes Tesla’s EBITDA margin compared to that of its peers. He expects Tesla to see a more than 20% compound annual growth rate for the next five years.
Tesla stock also climbed due to a jump in vehicle registrations in China, according to Reuters. Registrations of Tesla vehicles in China surged 450% in March on a month-over-month basis, according to data from auto consultancy LMC Automotive. Overall sales of vehicles in China plummeted more than 43% last month amid pressure from the coronavirus pandemic.
After this afternoon’s gains, Tesla stock is now up by more than 25% for the week.
Tesla stock rises amid record-high China sales
April 9, 2020 Update: Tesla stock has been on a bit of a run this week, alongside major indices like the Dow Jones Industrial Average and S&P 500.
The company surprised investors with solid delivery numbers for the first quarter. Now it has surprised again with data from a third party. The China Passenger Car Association reported that the automaker sold 10,160 vehicles in China last month. That’s a new record for monthly sales in the biggest auto market in the world.
Tesla’s goal is to produce 150,000 Model 3 cars in its factory near Shanghai. The company sold about 30% of the battery electric vehicles sold in China in March, according to the CPCA. Tesla sold about 3,900 vehicles in China in February, an increase from the 2,620 vehicles it sold there in January.
Earlier this week, Jefferies analysts upgraded Tesla stock from Hold to Buy and cut their price target from $800 to $650. They said the automaker is the only one that is legacy-free and in a positive electric-vehicle-sum gain. The analysts also said Tesla is leading the technological transformation in the auto industry.
Also this week, Blue Line Capital President Bill Baruch told CNBC‘s Trading Nation that Tesla stock has a solid floor at the 200-day moving average, which is at $400. He added that that level also served as a ceiling for the shares previously. He believes Tesla stock could climb toward $600, adding that there are some “strong resistance levels” around that level. As of the time of this writing, the shares are up more than 3% at $569.14.
Tesla stock soars after Q1 delivery numbers
April 3, 2020 Update: Tesla stock surged late Thursday and continues to climb today after the company reported solid deliveries for the first quarter. The automaker delivered 88,400 vehicles during the first three months of the year, representing its best first quarter ever, even as the coronavirus continues to impact markets and economies. Analysts had been expecting Tesla to deliver 89,000 vehicles during the first quarter.
Based on that delivery number, Deutsche Bank analyst Emmanuel Rosner is looking for a profit of 5 cents per share, compared with the $1.25 per share in losses he had previously been expecting. Tesla is slated to release its first-quarter earnings report toward the end of April or in early May.
Despite the record first quarter, it’s important to point out that Tesla’s deliveries were down in the quarter compared to where they were in the three quarters before.
Tesla stock downgraded for risk
March 23, 2020 Update: Elazar Advisors downgraded Tesla stock in a Seeking Alpha post earlier this month, and today the firm offered a further explanation for the downgrade. The firm needs three criteria before it rating a stock a Strong Buy.
The three criteria include 45% 12-month upside potential based on earnings one year out, multiplied by historic midpoint P/E. Since Tesla hasn’t had much history with earnings, it didn’t have a P/E, so Elazar just used 45 times. The second criteria is quarterly numbers ahead of consensus, while the third criteria is “wow,” referring to the story, the numbers or some other exciting factor.
As far as trading, the firm requires strong fundamentals, stocks that are moving up, and not allowing losses to run too far. Elazar sold Tesla stock because it felt the wow factor was gone, and losses from the highs were building. The firm also saw earnings risk as sales in Europe were plunging and the coronavirus was ramping up in China. Elazar sees continued risk for Tesla stock as the coronavirus impacts business operations.
Tesla stock continues to dive with the Dow
March 16, 2020 Update: Tesla stock plummeted more than 15% during regular trading hours today, falling alongside the Dow Jones Industrial Average’s 9% drop. The virtual carnage on the stock market is ever more apparent as the day drags on. RBC analysts slashed their price target on Tesla stock due to the coronavirus pandemic, while Bernstein analysts said despite the 40% plunge, the shares still aren’t cheap.
In a note to investors today, RBC analyst Joseph Spak slashed his price target for Tesla stock from $530 to $380 per share and reiterated his Underperform rating. He expects demand for the automaker’s vehicles to be constrained during the second quarter, possibly forcing production to be scaled back.
He now estimates that Tesla will deliver 364,600 vehicles this year, a significant reduction from the 524,200 vehicles he had been estimating before. He noted that the company’s vehicles are luxury vehicles, and consumers will be struggling under the economic fallout of COVID-19. Thus, he believes investors won’t pay as high of a multiple as they had been willing to pay when delivery estimates were higher.
More hedge funds went long on Tesla stock in Q4
March 13, 2020 Update: Many hedge funds have reported that they’re shorting Tesla stock. However, it sounds like more funds became bullish on the stock during the fourth quarter. That means a significant number of hedge funds could have enjoyed significant gains during the first quarter, especially if they got out before the stock dropped.
Insider Monkey reports that as of the end of the fourth quarter, 51 of the hedge funds it tracks had long positions in Tesla stock. That’s a 59% increase from the end of the third quarter. In the fourth quarter of 2018, 47 hedge funds had long positions in Tesla.
Morgan Stanley cuts price target on Tesla stock
March 12, 2020 Update: Morgan Stanley analyst Adam Jonas trimmed his price target for Tesla stock from $500 to $480 a share. He also cut his delivery estimate for this year to 452,000 vehicles. His previous estimate for 2020 was 500,000 vehicles, which he said is now his bull case. He reiterated his Underweight rating on the stock.
In a report today, Jonas cited the coronavirus pandemic as one reason for the reduction. He said the impact on profitability and working capital results in a lower forecast for cash flow. He now estimates Tesla’s cash flow at -$300,000 for this year on an adjusted basis, which results in his lower price target for Tesla stock.
He said one factor is a slight decrease in his expectations of demand rather than supply. He added that Tesla “is in pole position in EVs,” but he adds that the company’s vehicles are a “high priced and discretionary purchase.”
Jonas still forecasts a 10% increase in North American volumes this year, mostly due to what he believes to be a strong backlog for the Model Y offsetting potentially adverse vehicle sales in the first half of the year. He expects volumes in Europe to fall 10% year over year this year as incentives in important markets soften and amid a potential buyer’s strike before the Gigafactory opens in Europe.
According to the China Passenger Car Association, Tesla delivered 3,958 vehicles in February in China, compared to about 3,500 the month before. Jonas said this implies a production run rate of a little over 1,000 units per week as of the end of February. He assumes the production ramp in China will be delayed by about two months due to the coronavirus. He was previously expecting Tesla to be producing 3,000 vehicles per week at the China factory by April. Pushing the timeline back, he estimates between 100,000 and 120,000 vehicle deliveries in China for this year, depending on how the recovery from the coronavirus shutdown goes.
Tesla stock rises as Musk announces 1 millionth vehicle
March 10, 2020 Update: Tesla stock rallied along with the rest of the stock market today as CEO Elon Musk delivered some big news. Last night, he congratulated the Tesla team on manufacturing its 1 millionth vehicle.
The automaker has been delivering the Model S, Model X and Model 3, and deliveries of the Model Y are set to begin by the end of the first quarter.
Tesla stock plunged more than 13% yesterday amid a broad-based selloff in equities. However, today brought relief as the S&P 500, Dow Jones Industrial Average and Nasdaq Composite all saw relief.
Tesla stock sells off with the stock market as oil prices plunge
March 9, 2020 Update: Tesla stock plunged amid worries about a price war in oil, which sent crude prices tumbling. Shares of Tesla fell by as much as 14% during regular trading hours, sliding as low as $605 before a broad-based equity selloff triggered a market-wide halt in trading. The last time Tesla stock was trading in this neighborhood was in late January.
Falling oil prices spurred by the breakdown of the OPEC+ alliance are bad for Tesla. Saudi Arabia and Russia are both pouring cheap oil into the market, Bloomberg reported. Cheap oil means lower gas prices, which makes Tesla’s expensive all-electric vehicles a harder sell.
Another problem for Tesla is the sharp downturn in China’s automaker. The nation plays an important role in the company’s growth story.
New Street-high price target for Tesla stock
March 3, 2020 Update: Tesla stock was in the green most of the day today, but by early afternoon, it had flipped into the red, falling as much as 2%. Two analysts weighed in on the EV maker today. One of them offered a Street-high target price, while the other said Tesla stock has more to fall before it will start to rise again.
JMP Securities analyst Joe Osha upgraded Tesla stock from Hold to Market Outperform and set his new price target at $1,060. Excluding price targets that look out years into the future, Osha’s is the highest from major Wall Street firms.
He said although the price target implies an earnings multiple that some may feel seems “excessive,” investors have been buying low-growth automakers at high multiples. Further, Tesla has notched a compound annual growth rate of 23%.
He also said that based on estimates for next year, Tesla stock is trading at around 20 times estimated earnings. That’s not much higher than the S&P 500, which is trading at about 18.2 times estimated earnings for 2021. Osha’s price target is based on 32 times estimated earnings and five times estimated revenue based on 2021 numbers.
He believes the recent pullback caused by the coronavirus presents an opportunity for investors to enter the stock. He also said investors may find more opportunities to buy Tesla stock in the first half of this year as further impacts from the coronavirus become apparent.
Osha also believes Tesla won’t see much competition from other automakers. He believes the electric vehicles from other automakers won’t be able to stand up to Tesla’s EVs.
Wait before buying
Morgan Stanley analyst Adam Jonas still sees Tesla stock as an Underweight and kept his price target at $500 per share. On Monday, he said it’s too early for investors to dive into the stock.
The coronavirus has taken a bite out of Tesla stock because of the important role China plays in the company’s growth. Jonas said he would be bearish on the automaker even without the coronavirus outbreak. He believes investors should prepare themselves for “challenging” earnings numbers for the first quarter.
Excluding the impact from the coronavirus, he expects the company’s first-quarter numbers to be weak. He noted that Tesla has been working through its China production and Model Y ramp and that demand in some parts of Europe has been weaker following a strong fourth quarter.
Jonas recommends that investors wait to see if a difficult first quarter and disruptions to supply occur before deciding whether to buy into Tesla stock again. The coronavirus uncertainty only adds to those concerns, he added.
Tesla up as short-seller calls it “biggest single stock bubble”
Mar. 2, 2020 Update: Tesla stock is back on the rise today following its biggest one-week lost since the initial public offering in June 2010. Longtime bear Mark Spiegel of Stanphyl Capital published an update on his sort of the stock, calling February “a refreshing change” because it actually worked in his favor.
In his most recent letter, which was posted in its entirety by ValueWalk, he called CEO Elon Musk a “securities fraud-committing pathological liar” and again said why he believes the company is in danger. He noted that Tesla raised $2.3 billion in a recent stock offering just weeks after Musk said on the company’s earnings call that “it doesn’t make sense to raise money because we expect to generate cash despite this growth level.”
“In other words, if Elon Musk’s lips are moving, there’s an excellent chance he’s lying,” Spiegel wrote.
He also called investors who are long on Tesla “a mass of idiots bidding this stock to the moon because they think it’s a ‘hypergrowth’ company.” He alleged that the company’s earnings are usually inflated by $200 million or more each quarter due to “its massive ongoing warranty fraud.” He argued that Tesla actually lost money during the fourth quarter.
Spiegel believes demand for the Model Y is “disastrous,” arguing that it will cannibalize sales of the Model 3 and be up against “superior competition from… much nicer electric” vehicles. He called the Cybertruck a “joke of a ‘pickup truck.'”
He also called attention to the number of executive departures, saying that they must be leaving “because Musk is either an outright crook or the world’s biggest jerk to work for (or both).” He noted that Consumer Reports found Tesla’s Autopilot system to be unsafe.
You can read Spiegel’s letter on Tesla stock in its entirety here.
Whitney Tilson email on Tesla
Former hedge fund manager Whitney Tilson told colleagues in an email seen by ValueWalk the following regarding Tesla stock.
Last week I met with someone who I can’t identify, so you’ll just have to trust me when I say he knows what he’s talking about. He told me that the full-self-driving milestone that Tesla announced it reached (something about being able to handle highway entry and exits I recall), which the company used to justify releasing deferred FSD revenue into its income statement (thereby boosting its reported profitability), is a “complete joke” – it wasn’t an important milestone in any way.
The same person, however, said Tesla has some of the best engineers working for it, its battery packs are TWICE as efficient as any other car maker, and he’s optimistic about the Model Y – he doesn’t think there will be production issues (in part because it’s just a slightly modified Model 3) and said they’ve fixed the cold-weather battery issue.
Ron Baron loves Tesla stock
Feb. 28, 2020 Update: Billionaire Ron Baron believes Tesla could be worth $1.5 trillion by 2030. He offered his latest insight into Tesla stock in an interview with Barron’s this week.
He bought almost all of his 1.62 million shares of Tesla stock between 2014 and 2016 at an average price of $219.14 apiece, amounting to $355 million. Baron noted that the company’s annual revenue was only $2.5 billion in 2013 but grew to $25 billion in 2019. He expects to see it hit $33 billion this year.
By 2024, he predicts Tesla’s revenue will be between $100 billion and $125 billion, and he expects Tesla stock to carrying it to a valuation of $300 billion to $400 billion. By 2030, he looks for Tesla’s revenue to be between $750 billion and $1 trillion with operating profit in the range of $150 billion to $200 billion. By then he expects Tesla to be worth $1.5 trillion.
Tesla stock tanks after news of weak China registrations
Feb. 27, 2020 Update: Tesla stock tanked by more than 10% during regular trading hours today as the rest of the stock market pulled back. The shares’ decline was also worsened by a report of disappointing registration numbers on Tesla vehicles in China before the coronavirus outbreak.
Registration data in China revealed a major month-over-month slowdown in demand there. Data from the government-operated China Automotive Information Net revealed that registrations of new Tesla vehicles tumbled 46% from December to January. There were 3,563 Tesla vehicles registered in China last month. Of those vehicles, 2,605 were models that were actually built in China.
Demand for electric vehicles in China has been waning over the last few months, although Tesla had managed to avoid the problems that struck the rest of the industry. However, January’s steep decline in registration numbers indicates that the U.S.-based automaker isn’t immune to the problems faced by the rest of the Chinese EV industry. The nation’s overall vehicle market looks on track for a third consecutive annual decline amid the economic slowdown, trade tensions and now the coronavirus outbreak.
Tesla stock plunged 7% right after the markets opened. The shares were up 86% year to date through Wednesday’s close. Some of the optimism that’s been driving the stock has been due to the start of production at the factory near Shanghai. The automaker started delivering China-built vehicles last month. Tesla hopes to tap into the tax exemptions and subsidies that are only available on domestically built vehicles.
Concerns about the coronavirus are weighing on both Tesla stock and the broader market. U.S. stock indices also plunged during regular trading hours today.
Tesla stock driven by ESG trends instead of short squeeze?
Feb. 24, 2020 Update: Tesla stock plunged along with the rest of the stock market today, falling more than 7% to $834 per share. The shares have bucked the wider trend of the stock market in recent weeks, continuing to rise even while stock indices were falling, but that’s certainly not the case today.
One firm had some interesting insight into what may have been moving Tesla stock over the last several months. Jefferies analyst Christopher Wood said in a note dated Feb. 20 that the trend in ESG (environmental, social and corporate governance) investing may actually be responsible for a significant portion of the stock’s movement.
It has been widely reported that a short squeeze has driven the meteoric rise in Tesla stock, but Wood notes that ESG funds have seen massive flows recently. Tesla may be the quintessential ESG stock.
Wood argues that “big money can be made” in identifying stocks that are likely to capture ESG fund flows. He also suggests that the massive flows to ESG funds may actually be what has been driving the automaker’s shares rather than short covering. He pointed out that Tesla stock had surged 119% so far this year by the time of his report, and its short interest declined only 13% during that same timeframe.
Given the number of hedge fund managers who have said that they are still short Tesla, it is an interesting argument to consider.
Tesla closes stock offering with $2.31 billion gain
Feb. 20, 2020 Update: Tesla informed the Securities and Exchange Commission that it has successfully closed its latest stock offering. The automaker raked in $2.31 billion, easily unloading all 2.65 million shares. The underwriters also immediately exercised their options to buy shares, although they had 30 days to do so.
The total share sale in the offering was 3.05 million shares, which sold for $767 each. The amount expected to be raised was $2.01 billion to $2.31 billion, and Tesla easily managed the full amount at the high end of the range. The automaker said it would use the proceeds for general corporate purposes and to strengthen its balance sheet.
Even though share offerings dilute current shareholders’ investments, Tesla stock soared since the latest offering. However, on Thursday, the shares tumbled following a report about how McAfee was able to trick a Model S into speeding up by 50 miles per hour — using only a piece of tape.
These major funds bought Tesla stock right before it soared
February 18, 2020 Update: Tesla stock continues to soar, unimpeded by anything else in the market. The shares are up another 6% in early trading today after the long three-day holiday weekend. Now we’re hearing that two major hedge funds bought shares just before the latest meteoric rise.
Hyperion Asset Management’s Global Growth Companies Fund is in the top 1% of hedge funds based on returns. It has managed a 28% return over the last three years, surpassing 99% of its peers.
According to Bloomberg, the fund has been focused on investing in companies that can thrive when growth is low through the efficient use of technology. The strategy emphasizes companies that center on different trends of themes Hyperion management believe will last for at least 10 years. Hyperion usually holds stocks for 10 years, and its top holdings include Amazon, Microsoft and Visa.
Another fund, Renaissance Technologies, also invested in Tesla stock before the latest meteoric rise. According to Business Insider, the fund boosted its holdings in the EV maker in December to 3.9 million shares. At the time, the position was worth approximately $1.6 billion. The shares are now worth nearly $3.2 billion following the 91% increase in their value so far this year.
Charlie Munger: I would never buy or short Tesla stock
Feb. 13, 2020 Update: Charlie Munger of Berkshire Hathaway, longtime business partner of Warren Buffett, spoke about Tesla during his address at Daily Journal Corp’s annual meeting. He said he would never buy or short Tesla stock. He called Tesla CEO Elon Musk “peculiar,” adding that “he may overestimate himself, but he may not be wrong all the time.”
Tesla stock initially declined today after the company said in a statement that it will sell $2.3 billion in shares to raise capital. However, after the premarket decline, the shares recovered quickly and were up nearly 2% by 11 a.m. Eastern.
Model Y is one of the most-anticipated vehicles
Feb. 11, 2020 Update: Tesla stock finally seems to be taking a breather today with a climb of less than 1% at midday. Of course, it takes hardly any news to lift Tesla stock, and what we have to report could serve as a bit more fuel for the fire.
Tesla’s Model Y is one of the most-anticipated vehicles for 2020 so far. PartCatalog put together a list of the most-anticipated vehicles for each state in the U.S., and the Model Y captured California, Washington and Hawaii. It’s no surprise that Tesla took its home state of California, but it is interesting that there’s interest in two other states as well.
The most-anticipated vehicle is the much-hyped Ford Bronco with 19 states. The Chevy Corvette Stingray is in second place with 13 states, and the Land Rover Defender is in third place with six states.
Feb. 10, 2020 Update: Tesla stock continued its rapid climb early today as the company reopened production at its factory in Shanghai. The shares briefly topped the $800 level again but dropped back below that level as the early hours of trading continued.
Reuters reported on Friday that Shanghai authorities said they would help companies like Tesla restart product as quickly as possible. The factory there reopened today after an extended Lunar New Year holiday caused by the spread of the coronavirus. Tesla stock continues to be very speculative as today’s gains come days after it was revealed that production in China would restart today.
A short squeeze is also driving Tesla stock as short-sellers are being forced to cover their positions. However, some short-sellers aren’t willing to give up yet, as evidenced by the letters from hedge funds that continue to short the stock.
Concern over Tesla
Feb. 7, 2020 Update: Gene Munster of Loup Ventures, previously known for his analyst reports on Apple, is concerned about Tesla. The venture capitalist noted in a blog post that Tesla stock has soared, doubling the company’s market capitalization over the last month and tripling it since the end of the third quarter. He also said that the excitement that has driven the meteoric rise in Tesla stock presents risk in the short term. He believes bulls may be overlooking a few things.
For example, he expects the first quarter to bring a sequential decline in deliveries. The automaker delivered 112,000 vehicles during the fourth quarter. Munster pointed out that Tesla removed an important statement from its fourth-quarter letter to shareholders. In the second and third quarters of 2019, the company wrote that “deliveries should increase sequentially,” but that statement doesn’t appear in the Q4 letter.
Tesla stock and China
Munster believes it means a significant decline quarter over quarter is in order. He also noted that the company said production will probably outpace deliveries this year. Model 3 production is set to ramp in Shanghai, and Model Y production is beginning in Fremont.
The venture capitalist also noted that the first quarter is usually seasonally weak for automakers due to poor weather, discounts at the end of the year and releases of new models. Tesla also said in its fourth-quarter letter that its finished vehicle inventory level was at 11 days of sales, the lowest in the last four years. Munster said that means the automaker delivered every vehicle it could in the fourth quarter, “leaving many showrooms empty and online inventory searches yielding ‘no results.'”
He also notes that the company has been teasing its upcoming Plaid powertrain, and many Model S and X buyers are likely to wait until it is released. Other factors include the coronavirus impact on Shanghai production.
Tesla stock rumbled 0.46% to $745.52 during regular trading hours.
Hedge funds short Musk
Feb. 6, 2020 Update: Aristides Capital published an update on its short of Tesla stock in its letter to investors dated Feb. 3, 2020, which was reviewed by ValueWalk. Managing Member Christopher Brown had some very harsh words for Tesla CEO Elon Musk.
After doing well shorting Tesla stock most of the year in 2019, Brown said he should have stayed away after covering most of the position in the low $200s. However, he said he dug in a bit too hard in the fourth quarter, explaining that he has written so much on Tesla stock that he has lost his willingness to change to a different view on it.
Aristides covered some of its short of Tesla stock before the company posted its earnings and then covered most of the rest of the position by the end of the month. Brown noted that when companies shift from needing a continual supply of capital to being sustainable on their own, which is how Tesla fans now see the company, the valuation gets expanded.
Another problem for his short of Tesla stock is that the company’s EV competitors didn’t gain as much ground in the market as he thought they would have by now. Additionally, he thought Tesla’s “poor reliability would catch up to it” as the owner base expanded beyond fanboys, but that didn’t happen. Brown sees the automaker as “one of the least reliable brands and also the most loved/highest in loyalty.”
Elon Musk a liar?
Finally, Model 3 orders in the U.S. seems to be going much better than what Brown had expected. But it was his words about Elon Musk that really had an impact.
“Yes, Elon Musk is a narcist and a liar, yes, he has committed multi-billion-dollar securities fraud on more than one occasion, and yes, there is certainly the appearance of some accounting shenanigans at Tesla, but none of that seems to matter,” he wrote. “It’s a ‘cool’ car with a CEO who lied to bailout [sic] Solar City, lied about a takeover, libeled an actual hero, attacks journalists and whistleblowers, and never faces any serious consequences for it whatsoever.”
He also said he won’t promise that he will never short Tesla again, but if he does, it will be because he sees “a huge near-term edge on some sort of catalyst.”
Updates on Tesla stock
Dorsheimer continues to see Tesla as “the leading EV juggernaut and expects the upcoming battery day in April to be a major milestone to help investors understand the automaker’s lead in the EV maker. However, he also believes that patient investors will see a better entry point for Tesla stock if they wait.
Interestingly, advice on Tesla stock is trending so much on Feb. 5 that if you type in “should I” into Google, the top two auto-fill suggestions are “should I buy Tesla stock” and “should I sell Tesla stock.”
Previously: Tesla stock continues its hot streak on Feb. 4, 2020 with another $200 gain in a single day. The shares topped $700 on Monday and then $900 on Tuesday following another 20% gain. The EV maker’s stock has been on a run for months, and it received yet another shot of adrenaline last week from the fourth-quarter earnings release. Tesla Inc. (NASDAQ:TSLA) stock shows no signs of slowing down, and short-sellers have really been taking a hit on it.
Tesla stock: running of the bulls
Shares popped on Feb. 4 following bullish commentary from billionaire Ron Baron on CNBC‘s Squawk Box. The automaker’s valuation topped $160 billion, dwarfing General Motors’ $49.4 billion market capitalization.
In fact, GM, Ford and Chrysler are worth a combined $110 billion, and their combined revenue in 2019 was $425 billion, compared to Tesla’s $25 billion in revenue. Tesla’s stock rise puts it on track to compete with Toyota, which is the most valuable automaker in the world at a market cap of $232.1 billion.
Baron told CNBC that he sees Tesla hitting “at least” $1 trillion in revenue over the next decade. He also said he sees “a lot of growth opportunities from that point going forward.” His fund Baron Capital owns almost 1.63 million shares of Tesla stock, and he said they won’t be selling any of those shares. He believes the latest bull run in the shares is “just the beginning” and predicts that the automaker “could be one of the largest companies in the whole world.”
Tesla stock ratings
Numerous analysts updated their Tesla stock ratings following the company’s 4Q19 earnings release. The most astonishing price target increase came from ARK Invest analysts, who wrote on Feb. 1, 2020 that they expect the shares to be worth $7,000 by 2024. Interestingly, that’s their base case.
Their bull case puts Tesla stock at $15,000 or higher, while their bear case has it at $1,500, well above the $900 current price. One of the biggest factors in their price target increase is their expectation that the automaker will be able to slash costs and boost margins. They see an 80% probability of Tesla reaching 40% margins.
Wedbush analyst Daniel Ives boosted his price target for Tesla stock from $500 to $710 following the company’s Jan. 29 earnings release. He set his bull case for the shares at $1,000 and said he expects the “bull party” to continue. He has a Neutral rating on the stock.
Feb. 5, 2020 Update: Analysts at Canaccord Genuity downgraded Tesla stock in a note dated Feb. 4, 2020. Analyst Jed Dorsheimer said he now rates the shares at Hold, down from Buy, with a $750 price target. Tesla stock powered past $960 per share in trading on Feb. 4 but then pulled back on Feb. 5 following the firm’s downgrade. The stock plunged more than 12% to fall closer to $775 per share.
In his report, Dorsheimer said he saw a balanced risk/ reward for the shares following this week’s meteoric rise. He said they saw a clear buy signal for the stock entering the year, but he believes the coronavirus in China is a clear headwind for Tesla’s new Shanghai factory, which he said calls for “a more pragmatic position.”
“Given the 3,000 per week China Model 3 production expectations in a country that remains on lockdown, we feel a reset of expectations in Q1 is likely and thus needs to be reflected in the valuation,” he wrote.
Ivey wrote in an update on Feb. 3 that he believes the automaker will see 150,000 units of demand out of China alone in the coming year. He also believes the company’s guidance of achieving 500,000 deliveries in 2020 is achievable. He believes Wall Street is looking for between 530,000 and 550,000 deliveries in 2020. The big factor in the number of deliveries to expect include the automaker’s ability to ramp production and demand in China this year and next.
Analysts can’t keep up with price surge
Canaccord Genuity wrote analyst Jed Dorsheimer wrote in his Jan. 30, 2020 update on Tesla stock that the company is “feeling more like Space X.” The automaker posted $7.4 billion in revenue and earnings of $2.14 per share for 4Q19, compared to consensus estimates of $7 billion and $1.77 per share. Dorsheimer said one thing that’s important to note is that the company ended the fourth quarter with $6.3 billion in cash and generated $1 billion in free cash flow, which he believes should quiet concerns about the automaker’s balance sheet. He had a Buy rating and new $750 price target on Tesla stock as of Jan. 30, but the shares have now surpassed $900, putting that target underwater.
Morgan Stanley analyst Adam Jonas remains extremely bearish on Tesla stock with an Underweight rating and $360 price target as of Jan. 31, 2020. He said that in the almost nine years he has been covering the stock, investor commentary has not been as optimistic as it is now following the 4Q19 earnings release. Jonas downgraded the shares to Underweight on Jan. 16.
Hedge fund views of Tesla stock
Multiple hedge funds have covered Tesla stock in their letters to investors. Lakewood Capital wrote about its short of the shares in its fourth-quarter letter to investors dated Jan. 14, 2020. Unsurprisingly, the fund’s short of the automaker was its biggest losing position during the fourth quarter at 85 basis points.
The shares rallied into the end of the year after the company posted a “slight” profit in its third-quarter earnings release, Lakewood’s Anthony Bozza wrote.
“We’ve done this long enough to know that sentiment on stocks like Tesla can be nearly impossible to predict and are [sic] subject to large, sudden price fluctuations, and hence, we size our shorts prudently,” he told investors.
He described the fourth-quarter rally as “frustrating” but added that the position didn’t significantly detract from the fund’s full-year 2019 results.
Although we have seen this story countless times, what’s rather unique in the case of Tesla is the sheer scale of the situation,” he added.
Short-sellers feel the pain
Data from S3 Partners reveals that short-sellers have lost over $8 billion just in the last month alone. On Feb. 3, 2020, short-sellers lost a staggering $2.5 billion just in a single day. Despite the sizable paper losses they have recorded in the last few years, short interest in Tesla remains high with about 24.4 million shares being borrowed and bets against the company valued at more than $15 billion. That amounts to more than 18% of Tesla’s float.
Tesla is the most-shorted stock, and short interest is significantly higher than interest in the next two companies with the second- and third-biggest short interest. Less than 1% of the float is being bet against Apple and Microsoft each.
Short-sellers have been forced to cover some of their position in Tesla. According to S3, they have covered $12.6 billion worth of shares since they were below $200 in June 2019. It’s likely that some of the post-earnings run in late January and early February is the result of short-sellers finally caving and covering their positions.
Patient care and healthcare provision have always appeared among society’s top priorities, but keeping people well came into sharp focus during the pandemic.
So, too, did the role of pharmaceutical companies – not least how amazing advances in medical science could help the world combat Covid, but also how the sector was remunerated for its efforts.
As we seek to move beyond the difficulties of the past few years, pharma firms now have the chance to make further advances and bring innovation to market and, in the process, gain competitive edge over their rivals.
The race is on
With an abundance of patient data to hand – GDPR compliance permitting – and cutting-edge technology to aid the development and delivery of new products, the race is on to escalate and improve patient care with solutions that can truly make a difference.
Patients aren’t blind to the tech-driven changes going on around them. We’ve been using wearable technology for decades already. Acceleration of this market really kicked in 20 years ago, when devices from Bluetooth headsets to smart watches came on-stream. Ever since, we seem to have been glued to screens to understand more about ourselves, tapping apps that promise to monitor everything from self-care to Circadian rhythms.
Wearables are becoming breakout technology in the pharma space, too. Biospace estimates the market for these types of devices that add to the patient care toolkit will grow from today’s $21.3bn to $196.5bn by 2030.
In effect, the possibilities are endless. We already have access to devices that monitor our heart rate and alert first responders if sensors detect a health crisis like a stroke or heart attack. Similar technology could be rolled out across society, accelerating critical treatment times.
Emergency response is the tip of the iceberg. All of the data produced by wearables – from blood sugar levels to monitoring changes in the menstrual cycle – can automatically be passed to frontline healthcare organisations, enabling professionals to read and appropriately respond.
Such tech is just one example of an area that is ripe with opportunity for pharma businesses. But there are lots of other exciting developments at our fingertips.
Biosimilars get the sector’s blood pumping
During the past few years, interest has been growing in biosimilars. If you’re unaware of these types of drugs, the NHS describes them as: “Biological medicines that have been shown not to have any clinical meaningful differences from the originator medicine in terms of quality, safety, and efficacy.”
Biosimilars are therefore biological medicines that are highly similar to another version already licensed for use, and they are now being recommended all the time. They are, of course, subject to the same NICE guidance as originator medicine it has already approved. NHS leaders believe biosimilars will create up to £300m of annual savings thanks to their speed of development, a timely saving in a challenging market that looks set to come under increasing financial pressure during the next few years.
Clinicians also note that the biosimilars market will rapidly develop and grow in complexity, since more pharma players will introduce their own treatments using these techniques. At the same time – with full patient/carer consent, it should be acknowledged – healthcare providers are beginning to offer patients biosimilar treatments, such that they should become widely recognised and hopefully accepted in short order.
Patients will experience biosimilars in different ways. For example, my own experience of biosimilars has been to help a global pharma company launch a biosimilar autoimmune drug. The really smart part about this development is the wider use of technology it taps into.
An app was developed so that patient symptoms could be monitored – for example, their baseline health indicators checked and logged, and dietary and exercise advice offered – and adjustments to the drug dose made accordingly by their healthcare provider.
Meanwhile, reading patient data and symptoms using this method will become commonplace. For the patient, constant improvements and updates to associated apps will present them with a slick interface to keep tabs on their own condition and ease access to support.
The wide-ranging benefits of tech-driven treatment
Of course, generations of patients have become used to traditional treatment methods. Whenever there is change it often happens slowly and people need to be persuaded about the benefits of such an evolution.
It’s useful to pause and summarise the reasons why different types of technology are now so important to developments in the pharma and healthcare sectors. Expressing its benefits can help win the hearts and minds of millions of patients the world over:
Constant ability to monitor symptoms – including emergency alerts
New interaction methods for healthcare providers and patients
Better control of treatment plans, including long-term care
Overall, a promise of quicker and more efficient service delivery
As mentioned, apps will be one of the main interfaces where this new type of professional-patient relationship takes place. According to a survey by NEJM Catalyst, a majority (60%) of clinicians and healthcare industry leaders believe effective patient engagement makes a serious impact on the quality of care, and can substantially decrease the costs in the system.
Anything that can be done to cure this problem must surely be viewed as a positive. A patient engagement app that improves the experience for physicians and patients is a valuable tool.
Digital tools augment the benefits of medical products, such as by the aforementioned remote monitoring features with the ability to collect important patient data. Overall, mobile patient engagement promises better efficiency for pharma firms’ treatments, doctors, clinics, medical associations, and the whole industry in general.
Pharma giants such as Pfizer, Merck & Co., and Novartis are actively equipping their representatives with innovative digital tools to strengthen their credibility and relevance, reconnect with target audiences, and improve the infrastructure around medical products.
The creation and provision of efficient medical apps for professionals contributes to wider efforts to overhaul treatment programmes.
Digital can be a cure-all for lack of awareness or understanding among patients about their conditions and what they can do to alleviate symptoms. It can also drive better communication between doctors and patients by removing red tape from the process, while maintaining compliance with medical regulations. And it can build efficiency into often overwrought systems, particularly the densely populated urban areas and underserved rural communities that are under the most pressure for different reasons.
Simply by providing apps that drive patient engagement and improve their experience of treatment and healthcare provision, user trust grows. Healthcare apps can be built for patients with a deep level of personalisation, with user-friendly and agile design to suit a wide range of demographic groups. And that’s really the heart of the matter.
Why connecting with the end user matters
Mass adoption of new technology-driven medicines, treatments, and healthcare services will only stand if patients – and therefore their healthcare providers – feel comfortable that this new wave will change their outcomes for the better.
Two elements are critical to society feeling comfortable: technology and communication. That means building and using platforms, from patient apps to portals for healthcare professionals that display information and advice from pharma providers.
By connecting the dots between the pharma companies using cutting-edge platforms for innovative drug delivery, their healthcare markets, and the patients who professionals exist to support we can create a virtuous circle.
Patients will play their own part in the healthcare delivery revolution and provide their data in real-time as part of a feedback loop that the pharma industry can use to refine and invent treatment.
Whether you work in pharma or frontline healthcare delivery, there is no doubt that tech innovation can – and must – be the beating heart of patient services and treatment. You only need to consider the advances it has helped other markets make. For example, observe how smarter use of customer data has shaken up the energy market, allowing consumers to take control by switching to a more suitable option in a few short clicks.
Then consider the wider advertising industry, which has evolved from mass TV marketing to one-to-one, personalised messaging, drawing on data and technology as its fuel.
It’s in this context that we should view the future of pharma and healthcare provision. Technology and the data it delivers can drive drug development, but also the use of medicine in ongoing patient care.
Health tech investment is set to swell as the private and public sectors join forces for the benefit of society at large, and patient demand for innovation in diagnosis and treatment increases. There has never been a better time for pharma leaders to consider new ways to deliver smart, efficient treatments – driven by technology that provides a platform for new medicines and user adoption.
About the author
Rachel Grigg, partnership director at LABS (part of Initials CX), has worked in digital technology for the past 25 years and has seen and been involved with the advent of digital transformation first-hand. Her roles have varied from working in large corporate companies designing technical products to being MD and COO helping small digital agencies grow and succeed.
Scratches on dinosaur teeth could reveal what they really ate. For the first time, dental microwear texture analysis (DMTA) has been used to infer the feeding habits of large theropods, including Allosaurus and T. rex. By taking 3D images of individual teeth and analyzing the pattern of marks scratched into them, researchers could reason which dinosaurs may have frequently crunched on hard bone and which may have regularly eaten softer foods and prey. This technique opens up a new avenue of research for paleontology, helping us to better understand not only dinosaurs themselves but also the environment and communities in which they lived.
Credit: 2022 D.E. Winkler
Scratches on dinosaur teeth could reveal what they really ate. For the first time, dental microwear texture analysis (DMTA) has been used to infer the feeding habits of large theropods, including Allosaurus and T. rex. By taking 3D images of individual teeth and analyzing the pattern of marks scratched into them, researchers could reason which dinosaurs may have frequently crunched on hard bone and which may have regularly eaten softer foods and prey. This technique opens up a new avenue of research for paleontology, helping us to better understand not only dinosaurs themselves but also the environment and communities in which they lived.
From Fantasia to Jurassic Park, the T. rex is seen as a terrifying apex predator that would chase down its prey and crunch on it whole. But how much did this iconic dinosaur actually chow down on bones? And what about other predatory dinosaurs that existed long before it?
Researchers from the University of Tokyo, in collaboration with teams from the University of Mainz and the University of Hamburg in Germany, have used dental microwear texture analysis (DMTA), a scanning technique to examine topographical dental wear and tear in microscopic detail, on individual dinosaur teeth from more than 100 million years ago to better understand what they may have eaten. “We wanted to test if we could use DMTA to find evidence of different feeding behaviors in tyrannosaurids (from the Cretaceous period, 145 million to 66 million years ago) compared to the older Allosaurus (from the Jurassic period, 201 million to 145 million years ago), which are both types of theropods,” explained postdoctoral fellow Daniela Winkler from the Graduate School of Frontier Sciences. “From other research, we already knew that tyrannosaurids can crack and feed on bones (from studies of their feces and bite marks on bone). But allosaurs are much older and there is not so much information about them.”
DMTA has mainly been used to study mammal teeth, so this is the first time it was used to study theropods. The same research team from the University of Tokyo also recently pioneered a study on DMTA in Japanese sauropod dinosaurs, famous for their long necks and tails. A high-resolution 3D image was taken of the tooth surface at a very small scale of 100 micrometers (one-tenth of a millimeter) by 100 micrometers in size. Up to 50 sets of surface texture parameters were then used to analyze the image, for example, the roughness, depth and complexity of wear marks. If the complexity was high, i.e., there were different-sized marks which overlaid each other, this was associated with hard object feeding, such as on bone. However, if the complexity was low, i.e., the marks were more arranged, of a similar size and not overlapping, this was associated with soft object feeding, like meat.
In total, the team studied 48 teeth, 34 from theropod dinosaurs and 14 from crocodilians (modern crocodiles and alligators), which were used as a comparison. The team was able to study original fossilized teeth and take high-resolution silicon molds, thanks to loans provided by natural history museums in Canada, the U.S., Argentina and Europe. “We actually started dental microwear research of dinosaurs in 2010,” said Lecturer Mugino Kubo from the Graduate School of Frontier Sciences. “My husband, Dr. Tai Kubo, and I had started collecting dental molds of dinosaurs and their contemporaries in North and South Americas, Europe, and of course Asia. Since Daniela joined my lab, we utilized these molds to make a broader comparison among carnivorous dinosaurs.”
“It was especially challenging to carry out this research during the pandemic,” said Winkler “as we rely on being able to gather samples from international institutions. The sample size might not be so large this time, but it is a starting point.”
Winkler says what they found surprising was that they didn’t find evidence of much bone crushing behavior in either Allosaurus or tyrannosaurids, even though they know that tyrannosaurids ate bone. There may be several reasons for this unexpected outcome. It could be that although Tyrannosaurus was able to eat bone, it was less commonly done than previously thought. Also, the team had to use well-preserved teeth, so it might be that extremely damaged teeth that were excluded from this study were in such a condition because those animals fed more on bone.
Something the team did find with both the dinosaurs and crocodilians was a noticeable difference between juveniles and adults. “We studied two juvenile dinosaur specimens (one Allosaurus and one tyrannosaurid) and what we found was a very different feeding niche and behavior for both compared to the adults. We found that there was more wear to juvenile teeth, which might mean that they had to more frequently feed on carcasses because they were eating leftovers,” explained Winkler. “We were also able to detect different feeding behavior in juvenile crocodilians; however, this time it was the opposite. Juvenile crocodilians had less wear on their teeth from eating softer foods, perhaps like insects, while adults had more dental wear from eating harder foods, like larger vertebrates.”
Winkler says that the next step with dinosaurs will probably be to look in more detail at the long-necked sauropods, which the team has also been studying. But for now, she is experimenting with something much, much smaller: crickets. The insects’ mouths may be tiny and don’t have any teeth, but the researchers want to see if they can still find evidence of mouth wear using the same technique. “From what we learn using DMTA, we can possibly reconstruct extinct animals’ diets, and from this make inferences about extinct ecosystems, paleoecology and paleoclimate, and how it differs from today.” said Winkler. “But this research is also about curiosity. We want to form a clearer image of what dinosaurs were really like and how they lived all those millions of years ago.”
Daniela E. Winkler, Tai Kubo, Mugino O. Kubo, Thomas M. Kaiser, Thomas Tütken. First application of dental microwear texture analysis to infer theropod feeding ecology. Palaeontology, 2022, e12632. doi:10.1111/pala.12632
This work was supported by the European Research Council (ERC) under the European Union’s Horizon 2020 research and innovation program (ERC CoG grant agreement no. 681450) to T.T. The Japan Society for the Promotion of Science under a Postdoctoral fellowship awarded to D.E.W. (KAKENHI Grant No. 20F20325).
Graduate School of Frontier Sciences: https://www.k.u-tokyo.ac.jp/en/index.html
Lecturer Mugino O. Kubo
Department of Natural Environmental Studies,
Graduate School of Frontier Sciences,
The University of Tokyo
5-1-5 Kashiwanoha, Kashiwa City, Chiba 277-8563
Mrs. Nicola Burghall
Public Relations Group, The University of Tokyo,
7-3-1 Hongo, Bunkyo-ku, Tokyo 113-8654, Japan
About the University of Tokyo
The University of Tokyo is Japan’s leading university and one of the world’s top research universities. The vast research output of some 6,000 researchers is published in the world’s top journals across the arts and sciences. Our vibrant student body of around 15,000 undergraduate and 15,000 graduate students includes over 4,000 international students. Find out more at www.u-tokyo.ac.jp/en/ or follow us on Twitter at @UTokyo_News_en.
Method of Research
Subject of Research
First application of dental microwear texture analysis to infer theropod feeding ecology.
It’s not news that 2022 has been a tough one for stock markets. There have been sectors, like energy and utilities, that have bucked the negative trend but the big picture has been bleak. The UK’s large cap FTSE 100 index has faired better than most and is more or less flat for the year thanks to its heavy weighting towards energy, industrial commodities, and finance.
But it’s been a volatile ride and the end of the year could still drag London’s benchmark index into the red.
Over in the USA, the major indices have suffered significant losses. The growth companies, especially in the tech sector, that saw Wall Street enjoy over a decade of strong growth with only the occasional short-lived correction have been among those hit hardest by inflation hitting decades-long highs and interest rates rising.
That’s seen the tech-heavy Nasdaq Composite register an over 30% loss for the year-to-date and the broader based S&P 500 is down a little under 18% over 2022.
However, while the hangover from the Covid-19 pandemic and Russia’s invasion of Ukraine were unpredictable events that have undoubtedly deepened stock market losses, a turn of the market cycle is not a surprise. The bull market that preceded the 2022 bear market was the longest in history, supported by unprecedented levels of quantitative easing and record-low interest rates in major developed economies.
If anything, the surprise was that the bull market for equities persisted for as long as it did and pushed valuations so high. More bearish analysts had been warning of a reversal for years before it actually transpired.
What has been far more surprising, almost unprecedented, is that bond markets have failed to live up to their traditional portfolio role of providing insurance against an equities bear market. When equities, especially growth stocks, enter bear territory, bonds usually go in the opposite direction, rising with interest rates and an influx of capital seeking a safe haven.
Traditionally, a portfolio with a 60% allocation to equities and 40% allocation to bonds should come into its own during periods like this year. The bond allocation would be expected to cushion the blow of an equities bear market, paying its way for lower returns than equities during the good times.
But in the third quarter of this year, a traditionally conservative portfolio with a 40% allocation to equities would have actually underperformed one 100% allocated to equities. Inflation remaining stubbornly high this year despite the Fed and other central banks including the Bank of England has upended the conventional investing wisdom that equities and bonds do not both move in the same direction – the foundational principle of traditional diversification strategies.
But will that change in 2023? Could bonds outperform equities next year in a way that means investors should consider increasing their portfolio weighting towards fixed-income investments?
Why have bonds not lived up to their billing in 2022?
Nothing has worked well for diversified investors this year, not equities, not bonds and not the traditional 60/40 portfolio split between the two asset classes. But will this year prove a blip or has the relationship bet equities and bonds changed fundamentally?
Analysts including Morningstar’s Lauren Solberg believe the performance of the bond market next year will be most influenced by inflation. If inflation remains high, bonds could continue to struggle alongside equities. However, if major central banks including the Fed manage to wrestle inflation back down towards target levels, especially if that is accompanied by a recession, bonds would be expected to revert to their traditional anti-correlation with equities.
This year, one they would have been expected to benefit from a flight from equities and rising interest rates, has been the worst for bonds in modern history. It’s also been the only time in history that stocks and bonds have both recorded losses for three consecutive quarters.
Sky-high inflation, which is bad for both equities and bonds, has negated the usually positive impact on bonds of a bear market for equities and rising interest rates.
Will bonds return to form in 2023?
There is differing opinion among analysts and market observers about what 2023 might hold in store for bond markets. The more common expectation is that bonds will do a much better job at insulating portfolios than this year with yields now much higher than they were in late 2021.
However, others believe that a secular change in the correlation relationship between equities and bonds is now underway. That is based on the expectation that inflation, even if it falls meaningfully in 2023, could remain at higher levels and be more prone to volatility than it has been over the past couple of decades.
Recent research published by Truist Wealth shows that U.S. government-backed debt has delivered average annual returns of 6.6% over the past four recessions, beating both high-yield ‘junk’ and investment-grade corporate bonds. That would indicate 2023 could be a very good year for bond investors with the right exposure – a focus on government rather than private sector debt. However, we’ve already seen a significant divergence from historical patterns this year.
Marta Norton, chief investment officer for the Americas at Morningstar Investment Management, believes 2023 could be hold opportunities for fixed income, across government-backed and corporate bonds:
“When you look over the past 10 years, it’s really only been an equity story: It’s been such a good market to take on equity risk, a tremendously good time to be an equity investor. But today, it’s harder to know where to invest the marginal dollar. Fixed income is looking more appealing than it has in some time. You don’t have to take enormous risk to earn some return, and that’s a mindset shift to the environment we had before.”
While she acknowledges that U.S. equities now look a lot more attractively priced than they did a year ago, she cautions against investors rushing back to the market and thinks the bear cycle could last longer than many expect. She says the “buy the dip”mentality that has worked so well over the past decade could mean investors risk suffering meaningful losses by moving into a losing market.
She doesn’t advise not investing in equities but that investors should instead drip feed any investment instead of trying to time a bottom.
She is more confident in the opportunities around fixed income investments, especially higher-quality, shorter-dated fixed income, which she says comes with the added benefit of lower risk, especially if a deeper recession materialises.
Christian Mueller-Glissmann, head of asset allocation research within portfolio strategy at Goldman Sachs agrees. He notes the gap in yields between stock and bonds has narrowed substantially since the COVID-19 crisis and is now relatively low. The same is true for riskier credit, which yields relatively little compared with practically risk-free Treasuries and means investors are getting little premium for the risk of owning equities or high-yield credit in comparison to lower-risk bonds. As a result, equities and high-yield debt are particularly exposed to an economic slowdown or recession:
“That just makes equities and riskier debt very vulnerable for disappointments on growth next year”.
Lisa Shalett, chief investment officer of Wealth Management at Morgan Stanley is also championing bonds for 2023. She concludes:
“We continue to believe it is premature to call an end to the bear market for U.S. stocks. Investors may have moved on from inflation concerns, but they cannot ignore the economic picture. For now, investors should consider reducing U.S. large-cap index exposure. Instead, look to Treasuries, munis and investment-grade corporate credit. Stay patient and collect coupon income.”
What about UK Gilts vs London-listed equities?
Should investors mainly exposed to London-listed rather than Wall Street-based equities be thinking along similar lines? The FTSE 100 has remained largely flat in 2022, finally benefitting from its lack of growth stocks and heavy weighting to more traditional sectors like energy, commodities and finance.
London-listed equities were considered cheap before 2022, which is another reason valuations have not fallen in the same way as they have in the USA. On the other hand, they are also less likely to see as much upside if a recession is avoided next year and economic sentiment improves.
The FTSE 100 has also been boosted considerably by the soaring valuation of big energy companies like BP and Shell and utilities such as Centrica, which has compensated for companies in other sectors, such as consumer cyclicles, losing value. Energy prices easing off next year, which is by no means guaranteed depending on how geopolitical factors play out, would be negative for the benchmark index.
The UK’s outlook for both equities and government debt is not particularly positive. RBC Wealth Management summarises:
“A crippling cost of living, austerity measures, and the Bank of England tightening monetary policy will all conspire to create a prolonged recession in the UK, in our view. We advocate an underweight position in UK equities, although we are mindful that depressed valuations may produce interesting dividend income opportunities. We have a negative outlook on UK sovereign debt, as increased government debt issuance and the Bank of England proceeding to sell its Gilts portfolio will likely create a Gilt supply glut.”
While it may not appeal to patriotic sentiment, investors looking for the best risk-to-reward ratio in 2023 might be better served to invest in U.S. Treasuries than UK Gilts if a fixed income approach is favoured.