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Founder and Editor of Invest Chief Blog. Invest Chief is a blog dedicated to bringing unique investment ideas and with hard analysis. Invest Chief is for a wide range of viewers ranging from beginners to seasoned traders. We like to give a unique perspective on issues that are influencing the... More
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  • Tesla Could Sink To $150 Based On These Factors

    Tesla Motors (NASDAQ:TSLA) has had a very prominent rise since 2013 and is certainly the leader of the electric car market. Its flagship vehicle, Tesla Model S, features a full charge in as little as five hours and can go between 180-225 miles on a full charge. The four door luxury electric vehicle will certainly cost you though, according to Consumer Reports, the 2015 Model S ranges between $69,900 and $104,500. December 2014 sales for the electric car market show that Tesla's Model S reigned supreme with an estimated 3,500 Model S units sold in the US for the month, beating out Nissan Motor's (OTCPK:NSANY) Leaf, which sold 3,102 units in the US during December for the first time. The Chevy Volt brought up the rear with only 1,490 units sold during December.

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    While there are other electric cars on the market, the top three selling electric models on a monthly basis are the Tesla Model S, Nissan Leaf and Chevy Volt. We know that the 2015 Model S starts at around $70,000 and can go 180-225 miles on a full charge. The 2015 Nissan Leaf starts at $21,510, but has an average range of 84 miles on a full charge. Lastly, a 2015 Chevy Volt starts at $26,670 and has an electric range of 38 miles. The bottom line here based on the top selling electric models right now, Tesla is the priciest, but it also absolutely dominants in the miles per charge arena.

    While Tesla may be enjoying a successful December sales period, where it finally broke above the glass ceiling and became the top selling electric car in the US, its position at the top could be short lived. There are several factors that could put the squeeze on Tesla such as cheap oil, General Motor's (NYSE:GM) planned Chevy Bold, and the overvalued stature of Tesla's stock. These factors could push Tesla back to the $150 level, as short sellers begin building positions as well.

    Low Oil Prices

    The fact that oil is currently at $48.21, as of this writing, is extremely bearish for Tesla. The whole sales pitch and justification of the hefty price tag is that you save money in the long haul versus filling up the tank with gas. With gas above $4.00 and oil around the $100 level in the past year and a half, the pitch made sense and it certainly drew people to the brand. However, now that oil is sub-$50 and gas prices are in the low $2.00 a gallon range nationally, that hefty price tag looks even pricier. Low oil is bullish for traditional automakers that sell gas-powered cars and trucks, as consumers find it cheaper to upgrade and fuel their ride.

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    Yes, oil will eventually rebound and see a return to levels seen in the past, but the supply/demand aspect of crude oil is still out of whack and will not fix itself overnight. Additionally, with Saudi Arabia continuing to stay put and refusing to cut oil production, this certainly continues to put pressure on oil to the downside. Despite the different calls and forecasts from pundits, I do not see the supply and demand disconnect to resolve itself this year and the longer lower oil sticks around, the more harsh impact it could have on Tesla.

    Chevy Bolt

    Lets be honest for a moment, the Volt was a good idea, but the lack of electric miles per charge was a major turn-off to consumers who realized that they would only be getting 38 miles (on average) in electric before needing to turn to gas to continue on their way. If you are going to pay the "electric premium" to obtain an electric vehicle, there needs to be a justifiable amount of electrical usage from the auto. Otherwise, you are better off just going with a gas-powered model with a cheaper price tag. Additionally, Chevy has only sold 90,000 Volts since its debut in 2010. However, it appears that General Motors is get ready to reenter the electric car market with the intent on directly taking on Tesla's Model S. Chevy has announced that they plan to unveil the "Tesla killer" next week at the Detroit Auto Show. From the information that we know right now, the car will be called the Chevrolet Bolt and is said to be able to go 200 miles on a full charge. The best part of the new car is that it is extremely affordable at $30,000, compared to the Tesla Model S's $70,000 and their comparable miles per charge.

    Just from a basic comparison from information we know right now, this is a major problem for Tesla and certainly shows that its rein is built on sand. With virtually the same miles per charge on a full charge, Chevy lowers the cost to entry for consumers looking to get an electric car. There is a $40,000 difference from the starting price of the two cars and this certainly justifies why Tesla is in major trouble. While GM has had issues with electric cars in the past and the huge number of recalls last year, this could be a huge game changer when it is set to enter the market in 2017.

    Tesla is overvalued

    Tesla seemed to be the latest and greatest growth stock, after it had a monster year in 2013. The stock shot up from $37.51 on January 1, 2013 to $181.41 on January 1, 2014. That 383% return in one year gave traders and investors stars in their eyes. Tesla's share price continued to rally in 2014 when it hit an all time high at $269.70 on July 31, 2014. However, since hitting its all time high, shares have sagged to its current share price of $206.60. Turning to the fundamentals, Tesla Motors has a market cap of $25.91 billion and is rated a "buy" by analysts. The company is still not profitable, but is forecast to reach profitability within the next year, as seen with a price to forward earnings of 74.26. Price to sales of 9.07, price to book of 27, and price to cash of 11 are all overvalued valuation metrics. Additionally, Tesla does have a total debt to equity of 2.58, but luckily, the company is flushed with cash, at nearly 19 cash per share. Sales, quarter over quarter, are up 97.50%, but earnings per share dove -87.50% during the same period. What I really find interesting is the growing positions of short sellers, with a short float of 24.37%. Shares of Tesla are already down -7.08% year to date. The bottom line here is that Tesla is a high-flying growth stock that will definitely be hit hard when the market sees a steady correction.

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    In conclusion, Tesla is a trailblazer in the electric vehicle market and certainly has had a massive rise to fame. Early investors of Tesla have been rewarded dearly, but with oil prices significantly lower and looking to stay low for 2015, Chevy's planned Bolt electric car and the overvalued state of Tesla, I suspect we could see a very meaningful correction in shares of Tesla Motors, down to the $150 range by year end. The sales pitch up until now has been successful and justified for Tesla, but with gas prices in the low $2.00 per gallon range and a comparable, more affordable electric car coming to the market in a few years, prospective electric car buyers will save money by taking advantage of cheap gas prices right now and waiting for the Bolt to hit the market.

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Jan 11 5:06 PM | Link | Comment!
  • Playing the European Crisis
    Ireland, Spain, Portugal, Greece and possibly Italy are at the forefront of the financial crisis in Europe.  Overwhelming debts combined with already weak economies are creating serious issues.  The EU is now contemplating whether to make the bailout fund larger to suit the current position that Europe is facing.  However, Germany, largest contributor to the bailout fund, is hesitant to make the bailout fund larger because Germany is risking a large sum of capital in countries that are on the brink of defaulting. 

     I do believe that at the end of the day, Germany and the rest of the EU will have to compromise to allow a bigger rescue fund.  If they decide not to, the consequences could be devastating to markets around the world. 

    All the while these events are happening, the Euro is being hit hard against the dollar.  Similar events occurred earlier this year when Greece was the main problem. 

    Now it seems those days have returned and that sets up a few good trades as far as currency goes.  I recommend Powershares Bullish Dollar Index (NYSEARCA:UUP), and Proshares Ultrashort Euro (NYSEARCA:EUO).  These trades made great returns during the first European incidents at the beginning of the year, and they are sure to make good returns the second time around until Europe can stabilize the ailing economies.

    There are other options at your disposal if you don't want exposure to currency.  We can use put options or short the individual countries that are having a hard time cutting down debt and stabilizing their economies.  A few trades that would be ideal are: iShares MSCI Ireland Index (NYSEARCA:EIRL), iShares MSCI Spain Index (NYSEARCA:EWP), iShares MSCI Italy Index (NYSEARCA:EWI).

    Another route you can go (if you want a higher risk, higher return situation) is shorting Europe as a whole or shorting financials, which are the hardest hit sector in Europe.  If you want that higher risk a few plays that would suit that screen are: Proshares Ultrashort MSCI Europe Index (NYSEARCA:EPV), MSCI Europe Financials Sector Index (NASDAQ:EUFN).  Be sure that if you play one of these trades that for EPV is already a short fund so you would simply just buy the ETF.  However with EUFN you would need to short it or buy put options.

    No matter what way you plan to play the European crisis, I urge you to do your own research before you invest money, to understand if the risk is suitable for your financial situation.

    Disclosure: no positions
    Nov 27 12:26 PM | Link | Comment!
  • Black Friday Update and European Debt Crisis
    Markets opened lower today on European debt worries.  The Dow is down 83.36 or .75%, Nasdaq down 7 or .3% and the S&P 500 is down 8.05 or .67%. 

    The main focus today should be retail, its Black Friday.  Earlier this week a surprising consumer report came out that showed us that consumers are starting to spend their income again.  A surprising lower number of people are applying for unemployment benefits went along with the consumer report earlier this week.  Retailers are also cutting prices a record rates to make it even more affordable for consumers to splurge on holiday gifts.  This could point towards a good holiday retail numbers.  Now to be clear, we are in no way out of the woods.  Yes, the consumer is showing signs of recover, as is employment, very slightly.  However, keep in mind we still have an unemployment number around 10%.  That being said, the economy is, no doubt, much stronger than is has been in the last few years.  Please refer back to my "Playing The Cautious Consumer This Holiday Season" article from Monday to see how to play retail this holiday season.

    Back to the European debt crisis.  Ireland was recently bailed out by the EU and they have issued a 4 year plan to get their economy back on target and stabilized.  However, many people are skeptical that Ireland will be able to hit that target because of its insistence not to raise the corporate tax rate, which the EU has been pressing Ireland to raise.

     The problems don't stop there.  I was reading the Wall Street Journal on Wednesday and an article entitled "Fears of Domino Effect Pervade Europe" caught my eye.  Essentially, the article says that because of Ireland's bailout and unstable economy, other EU nations such as Spain and Portugal, and Greece.  Spain's economy is on the brink, as is Portugal.  Greece's debt securities are at risk to default.  Lots of unrest is occurring in Europe right now which could prove to have worse outcomes than earlier this year when these problems were last in the spotlight.  A safe trade to be in right now is Powershares Bullish Dollar Index (NYSEARCA:UUP).  The Euro is not safe right now due to all the uncertainty in Europe.  The Pound fell against the Dollar based on risk adversion.  Lastly, the Dollar rallies against the Yen based on a higher inflation number in October.  We are in an uncertain time right now with Europe's economic woes, potential second Korean war, TSA full body scans at airports.  A safe place to be is UUP.

    Disclosure: No positions
    Tags: UUP
    Nov 26 1:41 PM | Link | Comment!
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