Worried About Syria? Buy Tesla

Aug.28.13 | About: Tesla Motors (TSLA)

Early Monday, it looked as if stocks were headed higher. The Dow was up about 20 points as late as 3:00 p.m. ET. That's when Secretary of State John Kerry made a strongly worded statement regarding Syria's use of chemical weapons against its own citizens. It became clear to investors that the probability of U.S. engagement in Syria had suddenly spiked. The Dow closed lower by 64 points for the day. The selling intensified on Tuesday with the Dow falling another 170 points as expectations increased that the U.S. would soon launch a missile strike against Syria.

Click to enlarge

Of course, not all stocks fell on Monday and Tuesday. You might think that the best performers would include the military contractors. After all, they are the ones that should benefit most from a military escalation. However, this was not the case. Interestingly, one of the best performers on both Monday and Tuesday was also one of the most expensive stocks on the market. After rising more than two points on Monday, Tesla Motors (NASDAQ:TSLA) climbed almost three points on Tuesday.

Recently, I made the case that some investors have apparently come to view certain overvalued stocks such as Tesla and LinkedIn (NYSE:LNKD) as safe havens. In fact, as of today's close, the S&P 500 is down 4.4% from its Aug. 2 all-time closing high. At the same time, Tesla is up 20.7%. LinkedIn is up only 1.4%, yet that's still impressive at a time when many reasonably priced stocks have suffered large sell-offs.

Tesla now sells for 292 times expected 2013 earnings and 97 times expected 2014 earnings. It also sells for 9.8 times expected 2013 sales and 7.2 times expected 2014 sales. These are hefty multiples even if you believe that the analysts are being conservative in their projections (which I don't). So why do investors think Tesla is a safe haven? Why are they willing to pour money into this stock when they are pulling money out of almost every other stock? Simply because Tesla is going up.

I have warned many times before that overvalued stocks have a habit of becoming much more overvalued before they finally fall back to earth. This can be painful for anyone who is brave enough to short these kinds of stocks. Tesla is not being priced on its fundamentals. Tesla is a momentum stock being driven higher by momentum investors. Personally, I'd rather drive the car than buy this stock.