By Justin Spittler, editor, Casey Daily Dispatch
Tesla is getting murdered.
Last week, its stock fell 10%. It’s now down 50% since August.
That’s a staggering decline. After all, Tesla’s a giant company. It was worth more than $64 billion at its peak.
But it’s likely headed even lower.
Morgan Stanley, for one, thinks Tesla’s stock could plunge to $10. That’s 95% lower than Tesla’s current share price.
But even that might be too generous. According to Wall Street legend Jim Chanos, Tesla’s stock is worthless.
I know this sounds crazy. After all, Tesla’s a revolutionary company. It brought electric vehicles to the masses.
Because of this, most people thought Tesla’s stock would soar for years to come… not fall off a cliff.
But Dispatch readers saw this coming from a mile away.
• I’ve been telling investors to steer clear of Tesla since August 2017…
At that time, Tesla was one of the hottest U.S. stocks. It was up 65% over the past year and more than sixfold since 2013.
But the company had serious problems I simply couldn’t ignore.
It was drowning in debt. It was bleeding cash. And high-ranking executives were starting to jump ship. And that was just the tip of the iceberg.
Tesla had many other problems that should have scared investors away. But that wasn’t the case.
• Tesla was a favorite among “mom-and-pop” investors…
This was because Tesla shareholders, until recently, were a different breed.
They didn’t care about debt… profits… or Tesla’s absurd valuation. (At its peak, Tesla was trading for 25x its annual sales. That’s 100 times higher than Ford’s current price-to-sales ratio.)
They only cared about Elon Musk… and his grand vision for Tesla.
Musk is, of course, the founder of Tesla. He’s also one of the world’s most ambitious businessmen.
He wants to save the planet with Tesla and SolarCity, his solar energy company. And he wants to colonize Mars with his other business, SpaceX.
This is why many people loaded up on Tesla… despite obvious red flags.
• Of course, Musk is looking less and less like a visionary…
And more and more like a snake oil salesman.
The chart below says it all:
Tesla’s down 46% since I told investors to steer clear of it two years ago.
Investors are capitulating because, well, Tesla’s a horribly run company. It can’t hit its production goals. Demand for its vehicles is drying up. And the company has no roadmap to profitability.
In short, Tesla’s not the “dream” stock many investors thought they bought.
It’s a nightmare.
• Now, I didn’t write this essay to take a victory lap on Tesla…
I wrote it because Tesla’s brutal sell-off says a lot about the current environment.
Remember, Tesla’s problems were glaring. Anyone could see them.
But people ignored them because of Musk.
This is irrational behavior… but it’s not unheard of.
When euphoria’s in the air (like it has been), investors throw caution to the wind. They do stupid things because they’re not being penalized for stupidity. Everything’s going up.
But euphoria, like any high, eventually wears off. Investors sober up and start to care about things like debt, profits, and valuations again.
We’ve seen that happen with Tesla. We’re also seeing this play out with Uber…
• Uber is the world’s most popular ridesharing company…
It allows you to fetch a personal driver using your smartphone.
Three weeks ago, Uber held its initial public offering (IPO). This is when a private company offers shares to the public for the first time.
It was the most hyped IPO of the year… and the biggest in years.
But I hope you took my advice from December and avoided it at all costs…
Uber’s IPO was a disaster. Its stock fell almost 8% on its first day of trading. It’s since rebounded a bit, but it’s down more than 10% from its IPO.
• Lyft has fared even worse…
Lyft is another ridesharing company, and Uber’s biggest competitor.
It went public on March 29. And like Uber, Lyft’s IPO was one of the most anticipated in years.
But it flopped even harder than Uber’s. See for yourself:
Lyft plunged 10% from its open price on its first day of trading. And it still hasn’t found solid ground. As we go to press, it’s 35% below its open price.
Now, you might be wondering what Uber and Lyft have in common with Tesla. It’s actually a lot more than you probably think.
Uber and Lyft are revolutionary companies, just like Tesla. They’ve radically changed how people get from Point A to Point B.
They also have many of the same problems as Tesla. For starters, neither Uber nor Lyft is remotely close to making money. Uber, for one, lost $1.8 billion last year. Lyft lost $911 million.
Both companies are also saddled with debt. And Uber and Lyft, like Tesla, trade at asinine valuations.
So it makes sense that both stocks tanked out of the gate.
But here’s the thing…
• Investors probably would have gobbled up shares of Uber and Lyft a year ago…
Now, they’re (wisely) avoiding them.
This is extremely telling. It suggests investors are losing their appetite for risky, unprofitable companies.
And that’s further proof that we’re witnessing a tectonic shift in investor psychology.
If you read last Tuesday’s Dispatch, you know what I mean. In short, I believe the euphoria that’s characterized the market over the last few years is wearing off.
Investors are waking up. They’re paying attention to things like debt, profits, and valuations… and taking bad news seriously.
That doesn’t bode well for the rest of the stock market…
• So consider taking some risk off the table if you haven’t already…
I’m talking about companies that barely make a profit or, worse, lose money. You should also consider selling companies with heavy debt loads. Those stocks could get slaughtered in a serious downturn.
Cutting these stocks from your portfolio will give you more cash (“dry powder”) for the next downturn.
You should also consider buying gold, or what we like to call the ultimate safe-haven asset. (You can read the best ways to buy and store gold in our free report here.)
Investors who take these steps will cushion themselves against heavy losses. They’ll also sleep better at night.
Delray Beach, Florida
May 28, 2019
Today, readers respond to Doug Casey’s latest interview on Iran…
I find Doug’s thoughts on Iran not only food for thought but spot on. It seems Trump likes being “in the news” but this aggression in the Middle East can only end poorly if it spins out of control, too many entities involved. The Bible points to the Middle East as the beginning and the end. Hope the end is not around the corner in that narrow strait.
Doug is so spot on with his analysis. I am always perplexed how little U.S. presidents are willing to learn from history. Probably they don’t even bother to read history, that’s probably it. What did Donald Rumsfeld say: “We are creating our own reality.” Trump must also subscribe to that twisted philosophy.
As always, send any questions, comments, or concerns to [email protected].
In Case You Missed It…
The man who called the 2008 financial crisis now predicts that the U.S. stock market could crash on October 21, 2019.
While most investors will lose it all, he’s personally looking forward to it… That’s because, if you see it coming, you could make a fortune.
He’s put together a presentation in which he details his full analysis. But you only have until tonight at midnight to watch it. Read on here before it gets taken down.