Tesla Motors Inc (NASDAQ:TSLA) stock “is a high-risk buy at current levels,” says a report from Seeking Alpha from John Morgan, who believes that other stocks in the EV industry including suppliers and investors in Tesla may provide a better opportunity. For investors who missed the phenomenal run of Tesla shares, the author has two suggestions: to wait for a rare correction in the stock price or to “look under the hood of the automaker to capture related ideas with lingering value.”
Tesla is trading 150 times its forward earnings riding high on the success of its stylish Model S and “ambitious plan to build a huge “gigafactory” for EV batteries.
A decade ago, no one talked about tail risk hedge funds, which were a minuscule niche of the market. However, today many large investors, including pension funds and other institutions, have mandates that require the inclusion of tail risk protection. In a recent interview with ValueWalk, Kris Sidial of tail risk fund Ambrus Group, a Read More
Talking about alternatives, the author says that few of the companies related to the EV technology are “solidly” profitable, unlike Tesla Motors Inc (NASDAQ:TSLA). Such companies are expected to benefit from the rising popularity of the EV vehicles among consumers. Arotech, Polypore and Maxwell are three such companies expanding in the energy storage and battery technology fields.
Among the three, Arotech, which makes batteries and charging systems primarily for the military, offers the most value, according to author. Arotech has the lowest trailing P/E of 30.71, the lowest price-to-book at 2.15, and the highest EPS growth at 171%.
Another related EV segment is lithium-ion batteries, and three big suppliers of lithium are FMC Corp., Chemical & Mining Co. of Chile and Rockwood. FMC and Chemical & Mining are not only into lithium as they deal in other minerals also; on the other hand, Rockwood has spent a huge amount to acquire the biggest lithium reserves globally.
Another important component of lithium-ion batteries is graphite, and three listed traded graphite producers are Entegris, Advanced Metallurgical Group and Graftech. According to the author, Entergris is the most favorable with a trailing P/E of 22.44, price-to-book of 2.32, operating margin of 13.05 and ROE of 10.24.
For investors who want direct exposure to Tesla Motors Inc (NASDAQ:TSLA), the author suggests Panasonic, Daimler or Toyota as all three firms that have invested in Tesla. Among the three, Panasonic will be the most closely related to Tesla as the former is collaborating in the gigafactory with Tesla.
The author also suggests a few of the direct suppliers of Tesla Motors Inc (NASDAQ:TSLA) including Nvidia (supplying instrument displays), OmniVision (responsible for Tesla’s rear-view camera system), Cypress Semiconductor (supply touchscreen components for the Tesla infotainment system) and Garmin (handling the navigation system of Tesla).