Tesla: Is It Time To Take Partial Profits?

Sep. 5.13 | About: Tesla Motors (TSLA)

Tesla (NASDAQ:TSLA) shares have soared this year, driven by lots of positive news and the key basic fact that the Model S is a really great car. In fact the Model S makes everything else seem old fashioned, even ultra luxury and sports cars, in my opinion. Here in Silicon Valley, the Tesla is the "coolest" car to own and there are many on the road.

I have been asked if it is time to take profits. If your position has grown to be greatly overweighted it can certainly make sense to trim it some. However, I would still leave it overweighted in your growth stock portfolio.

Things I suggest watching for while maintaining your overweighted position in a stock that has done so well like Tesla.

  1. Is the stock continuing to perform as well as your overall portfolio or the overall market? Among my current holdings, only Facebook (NASDAQ:FB), Linked-in (NYSE:LNKD), Splunk (NASDAQ:SPLK) and Yelp (NYSE:YELP) have been performing as well or better than TSLA in recent days, so I am watching it closely but not trimming my position.
  2. Is the stock staying above its 50-day moving average line (at just under $140 today)? Or from a shorter-term trading basis, is it staying above its 10-day moving average line (at just under $150)?
  3. Is there any change to the story that has been very positive?

Relative to this last question, the TSLA story appears to be as strong as ever fundamentally but perhaps on a momentary plateau that is a function of constraints in the supplies of batteries for the Model S sedan. Demand for the Model S exceeds supply and Tesla is having to delay launches in additional countries until the flow of batteries increases more greatly. They are reportedly pushing their battery supplier Panasonic to increase production and are talking to other potential suppliers as well. We expect this to be a temporary issue and hope and expect Tesla to be able to further increase its Q4 and 2013 production targets by the time of its Q3 earnings call in early November.

Beyond the battery-constrained immediate-term issue, I expect the flow of news to continue to be very positive with launches in Europe and China and new stores, service centers and charging stations here in North America as well. In fact many positive launch and strong order announcements could come at any time. The news flow is as important as the actual current sales and profit numbers for a company with a very bright future like Tesla, in my opinion. Tesla is run by CEO Elon Musk, perhaps the most innovative and forward thinking person in Silicon Valley or anywhere else today.

If you do not own Tesla and would like to profit from it, any correction would be a good opportunity to finally get aboard a ride that I believe is far from over. The stock would be especially attractive should it correct back near its 50-day line near $140. But the stock has been an exceptionally steady performer even on weak stock market days, so it might not correct much if any.

One additional point is that Tesla could benefit should events in the Mid-East cause an oil price spike. If you are like me, none of your other holdings have that potential attribute.

Disclosure: I am long TSLA, FB, LNKD, SPLK, YELP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.