Well, folks, the biggest bubble stock on the market just got a bit bigger.
I’m talking about Tesla (TSLA), which now trades at more than $1,300 a share and boasts almost a $260 billion market cap. The reality is that Wall Street continues to hype up the stock to ridiculous levels.
The latest hype comes courtesy of Morgan Stanley analyst Adam Jonas, who raised his “bull case scenario” price target to a whopping $2,070 – 59% higher than where the stock trades today. And he wasn’t the only analyst to do so. Wedbush analyst Dan Ives also raised his “bull case scenario” to $2,000.
The price target comes on the heels of Tesla reporting that it made 82,272 vehicles, versus the expected 77,000, and delivered 80,050 Model 3 sedans and Model Y cross-over SUVs during the second quarter.
Now, despite the price target hike, Jonas is concerned about Tesla’s profitability, increasing competition and the auto industry.
And he should be.
According to my friends who work in the Tesla Gigafactory outside of Reno, Tesla’s sales have plunged in both China and the U.S. in the past year. Tesla’s growth has been carried almost exclusively by European sales, which has ignited concerns now that European sales dropped in the second quarter.
The Model 3 slipped to the number-two spot, with only 8% of the electric vehicle (EV) share. So, they’re now worried more than ever before. In addition, low-priced EV competition is expected to continue to erode the Tesla Model 3’s European market share due to new incentive programs in France and Germany.
Renault Zoe recently passed the Tesla Model 3 as the top-selling electric vehicle in Europe in May. Ford Motor (F) is also poised to beat Tesla in EV sales in the U.S. in the upcoming years, thanks to its Mustang Mach E, an electric F-150, and its alliance with VW Group to share electric vehicle architecture and modular design.
Given these factors, Tesla’s stock cannot go up forever. We’re beginning to see this with Nikola Corporation (NKLA), which has seen some air come out of its bubble this month. The stock has fallen about 15% in July.
As I recently discussed, NKLA has a $20 billion valuation and no significant revenue to justify its inflated value. However, since the company commenced soliciting Badger deposits, Wall Street firms have begun upgrading the stock in hopes of attracting some lucrative investing banking business.
Not all analysts agree, though. In fact, one RBC automotive analyst recently stated that Nikola is “more like a business plan than a business.” He also noted that the company likely won’t have any revenue until late 2021, if it’s lucky.
In tomorrow’s Breakthrough Stocks July Monthly Issue, I’ll discuss more in-depth about when I expect these bubbles to be pricked and why I expect investors to be knocking down the doors of our Breakthrough Stocks. (You can click here now for more details.)
For now, though, let me say this: The second-quarter earnings season is going to separate the wheat from the chaff, and I expect big misses (or hits) to impact the broader stock market. We saw a little bit of this today, as the Dow was dragged down in part by Walgreens Boots Alliance’s (WBA) weaker-than-expected fiscal third-quarter earnings results.
Not only did the company’s earnings of $0.83 per share miss estimates, but its margins are contracting and company management is laying off more than 4,000 employees in its Boots UK and Boots Opticians businesses in the UK and closing 48 optician centers to cut costs.
The good news is that the fundamentally superior companies that report strong quarterly results should emerge as the market leaders and become the oasis for investors. My Breakthrough Stocks Buy List is chock full of them, as they are expected to post 32.3% annual sales growth and 603.2% annual earnings growth.
And, our average Buy List stock has had its forecasted quarterly earnings revised 4.2% in the past month alone. This is what you can expect when you invest in the crème de la crème of the stock market.
In comparison, according to FactSet, the S&P 500’s second-quarter earnings are forecast to plummet 43.8% on average. If that happens, it will be the biggest drop in earnings growth since the fourth quarter of 2008. Analysts have also lowered second-quarter earnings forecasts by an average 37%. Second-quarter revenue is expected to decline 11.1% on average.
While it’s going to be a tough earnings season for some stocks, I’m not concerned about mine across any of my services. In fact, I expect my companies’ earnings results to drop kick their shares and drive them higher.
I will dive into the specifics for my small-cap stocks in tomorrow’s Breakthrough Stocks July Monthly Issue, as well as reveal two new buy recommendations in companies that are well-positioned for the upcoming quarters and my fresh list of Top 5 Stocks for July. To get started early, as well as receive my free market forecast and “Open House” for Platinum Growth Club, you can sign up here.