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The Anatomy of a Tesla ($TSLA) Trader Analyst

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Hi, my name is …

Marco Papa. I am a techie by trade and very much a product of the first dot com boom (and bust) of the 90’s. I originally came to this country from Italy to pursue a PhD in computer science at USC, back in 1981.  I worked for 6 different dot-coms in the span of 10 years, starting as software developer, then system architect all the way to several CTO positions. All these companies, except one, no longer exist: they either were sold, or went bankrupt.  But in the process I learned a lot about company valuations, private placements, and raising tens of millions of dollars from VCs, banks and brokerage houses. And yes, like many other Internet executives of the time, I owned a Ferrari 355 spider convertible. I’ll come back later to the Ferrari.

After 10 years of high-stress jobs, I decided to move to slower-paced “environments”:  for the past 14 years I have held a daytime job working for state government and a nighttime job teaching Web Technologies at USC.

“Buy what you know”

But it is during the dot-com era that I started tinkering with Mutual Funds and stocks. For the initial 15 years I was an “investor”.  I would purchase mutual funds and stocks and hold them for a minimum of a year. Then in 2005 something changed: I consolidated all my retirement funds from the various companies I had worked for into a single SEP-IRA at E-Trade and strangely enough, after answering a simple questionnaire, E-Trade gave me access to Level 2 Options trading. I did not know much about options then, so I subscribed to a service called the Options Oracle from The Market Guys (http://www.themarketguys.com), which recommends entry and exit points for options trades for a fee. I learned a lot, but I felt frustrated that I was trading options of companies I knew nothing about. So I decided to follow an investment method that I had learned when I used to hold shares in Fidelity Magellan Fund (https://en.wikipedia.org/wiki/Magellan_Fund), a fund with $20B of stock investments, and the best performing one between 1977 and 1990, averaging over a 29% annual return. Peter Lynch, Magellan fund manager at that time, created the investment method commonly referred to as “Buy What You Know”: invest in businesses that you understand “personally”, especially if you buy and own their products. Since that time, I have tried to follow the “Buy What You Know” method in all my investments and trades.

Interestingly it is at that time that I started making my “switch” from Windows to the Mac. My first Apple purchase was an iPod; I subsequently trashed a ThinkPad and bought a MacBook, and finally trashed an HP desktop and bought a Mac Pro. Today I own probably close to 25 Apple devices, once I count all the iPhones, iPads, Apple Extremes, Apple TVs, and Apple Watches my wife and I use daily. In 2006 I started “investing” in Apple stock. After the stock market crash of 2007, I started “trading” Apple options. Between 2006 and 2014 I made more money trading AAPL than any other stock.  During that time, I added a few more stocks to my trading pattern: Netflix (NFLX), Amazon (AMZN), Google (GOOG), Facebook (FB), Starbucks (SBUX) and more recently Tesla Motors (TSLA). These are all companies that qualify for the “Buy What You Know” mantra: I either buy their products regularly or use them in my daily life.

$TSLA to P90D

I started reading about Elon Musk since he founded PayPal. I read about his promotion of sustainable energy as a way to save our planet. In 2012 I installed solar panels in my house in Redondo Beach, CA. In 2013 I replaced my energy-hog 2007-vintage Mac Pro with a low-energy Mac Pro (a.k.a. the “can”). In 2014 I switched all light bulbs in my house (over 300 of them) from incandescent to low-energy LEDs. And in 2015 I bought a red Tesla Model S P90D (a.k.a. Red Five X-wing). By now my carbon footprint is in pretty good shape.

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I started trading TSLA options in early 2014. By summer of 2015 I had enough profits from option trades in TSLA, AAPL and SCO to pay in cash 2/3 of the price of my P90D.

After trading TSLA for over two years I have a few opinions on how to invest or trade it. A stock for me is a good “investment” if it can be held for about 5 years, and provide annual stock gains of 5-10% per year. If you had purchased TSLA stock at the IPO in 2010 at about $19, you would be sitting pretty at a 10-bagger at $250, 6 years later. But if you had purchased it in March 2014 at $265 you’d be about even, two years later.  Twice in the past couple of years TSLA stock raised to $275, while slamming back to $140-180 in just 6 months, both times. Tesla in my opinion is not yet a good long term investment.

Part of the reasons is that good long term investments are based on “fundamental” analysis of stocks. Fundamental analysis is based on analyzing the characteristics of a company in order to estimate its “value:” high earnings, income, high profit margins, and small debt are what investors are looking for. According to a recent thestreet.com article, “Tesla Motors has a ‘sell’ rating and a letter grade of D+ at TheStreet Ratings because of the company’s deteriorating net income, generally high debt management risk, disappointing return on equity, poor profit margins and feeble earnings per share growth.”

So if I would not recommend TSLA stock as an investment, why would I even consider TSLA for my trades? Because TSLA is a wonderful stock to trade, not on the basis of “fundamental” analysis, but on the basis of “technical” analysis. In finance, technical analysis is a security analysis methodology for forecasting the direction of prices through the study of past market data, primarily price and volume. The “value” of the company does not matter. Even just 10 years ago, trading on the basis of technical analysis was only for the pros: brokerage houses, money managers and hedge fund managers. Today individuals have access to tools, indicators, and “conditional” trades that make trading, and especially options trading, much easier and safer.

I consider myself a “swing” trader: I normally enter an option trade when at least 3 indicators are firing on all cylinders; I put conditional stops to lower my losses when the market goes against my trade, and get out of trades when indicators are turning negative.

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Coming up

It turns out that TSLA is a fairly good “swing” stock, where the above methodology has worked well in the past. In the next few weeks, while covering the news about the company that can affect its stock price, I will introduce some of the tools, indicators and techniques that any trader can use to profit on TSLA. You’ll hear names like moving averages, pay-day cycles, MACD indicator, Heikin-Ashi charts, support and resistance lines. You will see that none of these are rocket science.

I will write a column, a couple of times a week, providing TSLA stock analysis, information on investing and trading TSLA stock and options, and covering TSLA earnings and all rumors and news that can affect the stock.

Now back to the Ferrari. The F355 Spider that I purchased in 1996 was priced at $137,000, had a top speed of 183mph, 375hp, 268lb-ft torque, and performed 0-60mph in 4.5s and the quarter mile in 12.9s.

The Tesla Model S P90D (Insane) I purchased in 2015 has a very similar price, $142,000, but with a top speed of 155mph, 691hp, 713lb-ft torque, and performs 0-60mph in 3.1s and the quarter mile in 11.7s. The Tesla sedan beats the Ferrari in all but the top speed rating.

But while you needed a Formula 1 driver to obtain those numbers in the Ferrari, mainly to change the gears at the exact right time, effectively anyone can get the Tesla numbers just by flooring the accelerator.  The only thing I miss from the Ferrari is the “roar” of the engine; for everything else the Tesla is so much more fun.

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Disclosure: I currently have no positions in any stocks mentioned, but I may plan to initiate positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Teslarati). I have no business relationship with any company whose stock is mentioned in this article.

 

Investor's Corner

Tesla analyst says this common earnings narrative is losing importance

“Numbers are going down next year, but that’s ok because it’s all about autonomy.”

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(Credit: Tesla)

A Tesla (NASDAQ: TSLA) analyst is doubling down on the idea that one common earnings narrative is losing importance as the company continues to work toward new technologies and projects.

This week, Tesla will report earnings for the third quarter, and one thing people always pay attention to is deliveries. Although Tesla reveals its deliveries for the quarter well before it reports earnings, many investors will look for commentary regarding the company’s strategy for responding to the loss of the $7,500 tax credit.

Tesla has made a few moves already, including a lease deal that takes a substantial amount of money off, launching new Standard models, and cutting up to 23 percent off of lease pricing.

Tesla makes crazy move to spur short-term demand in the U.S.

However, analysts are looking at the company in a different light.

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Aligning with the narrative that Tesla is not just a car company and has many different projects, Gene Munster of Deepwater Asset Management believes many investors need to look at another part of the business.

Munster said the delivery figures for Q3, which landed at 497,099, the highest in company history, were padded by customers rushing to showrooms to take advantage of the expiring tax credit.

He believes that deliveries will be more realistic in subsequent quarters, but investors should not worry because the focus on Tesla is not going to be on how many cars it hands over to customers:

“Numbers are going down next year, but that’s ok because it’s all about autonomy.”

Tesla has been working nonstop to roll out a dedicated Robotaxi platform in various cities across the United States, and has already launched in two states: Texas and California.

It has also received regulatory approvals to test driverless Robotaxis in Arizona and Nevada, while seeking permissions in Florida and other states, according to the company’s online job postings.

Munster continued:

“Most people are hyper-focused on the Robotaxi opportunity and not focused as much on FSD.”

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While Robotaxi is incredibly important, Tesla’s Full Self-Driving (Supervised) suite is also extremely crucial moving forward, as it sets the stage for the company to roll out a formidable self-driving service.

Tesla rolled out its newest FSD software to more owners last night, and as it expands, the company is gaining valuable data to refine its performance.

Earnings will be reported tomorrow at market close.

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Elon Musk

Tesla CEO Elon Musk’s $1 trillion pay package hits first adversity from proxy firm

ISS said the size of the pay package will enable Musk to have access to “extraordinarily high pay opportunities over the next ten years,” and it will have an impact on future packages because it will “reduce the board’s ability to meaningfully adjust future pay levels.”

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tesla elon musk

Tesla CEO Elon Musk’s $1 trillion pay package, which was proposed by the company last month, has hit its first bit of adversity from proxy advisory firm Institutional Shareholder Services (ISS).

Musk has called the firm “ISIS,” a play on its name relating it to the terrorist organization, in the past.

The pay package aims to lock in Musk to the CEO role at Tesla for the next decade, as it will only be paid in full if he is able to unlock each tranche based on company growth, which will reward shareholders.

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However, the sum is incredibly large and would give Musk the ability to become the first trillionaire in history, based on his holdings. This is precisely why ISS is advising shareholders to vote against the pay plan.

The group said that Musk’s pay package will lock him in, which is the goal of the Board, and it is especially important to do this because of his “track record and vision.”

However, it also said the size of the pay package will enable Musk to have access to “extraordinarily high pay opportunities over the next ten years,” and it will have an impact on future packages because it will “reduce the board’s ability to meaningfully adjust future pay levels.”

The release from ISS called the size of Musk’s pay package “astronomical” and said its design could continue to pay the CEO massive amounts of money for even partially achieving the goals. This could end up in potential dilution for existing investors.

If Musk were to reach all of the tranches, Tesla’s market cap could reach up to $8.5 trillion, which would make it the most valuable company in the world.

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Tesla has made its own attempts to woo shareholders into voting for the pay package, which it feels is crucial not only for retaining Musk but also for continuing to create value for shareholders.

Tesla launched an ad for Elon Musk’s pay package on Paramount+

Musk has also said he would like to have more ownership control of Tesla, so he would not have as much of an issue with who he calls “activist shareholders.”

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Investor's Corner

Barclays lifts Tesla price target ahead of Q3 earnings amid AI momentum

Analyst Dan Levy adjusted his price target for TSLA stock from $275 to $350, while maintaining an “Equal Weight” rating for the EV maker.

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Credit: Tesla China

Barclays has raised its price target for Tesla stock (NASDAQ: TSLA), with the firm’s analysts stating that the electric vehicle maker is approaching its Q3 earnings with two contrasting “stories.” 

Analyst Dan Levy adjusted his price target for TSLA stock from $275 to $350, while maintaining an “Equal Weight” rating for the EV maker.

Tesla’s AI and autonomy narrative

Levy told investors that Tesla’s “accelerating autonomous and AI narrative,” amplified by CEO Elon Musk’s proposed compensation package, is energizing market sentiment. The analyst stated that expectations for a Q3 earnings-per-share beat are supported by improved vehicle delivery volumes and stronger-than-expected gross margins, as noted in a TipRanks report.

Tesla has been increasingly positioning itself as an AI-driven company, with Elon Musk frequently emphasizing the long-term potential of its Full Self-Driving (FSD) software and products like Optimus, both of which are heavily driven by AI. The company’s AI focus has also drawn the support of key companies like Nvidia, one of the world’s largest companies today.

Still cautious on TSLA

Despite bullish AI sentiments, Barclays maintained its caution on Tesla’s underlying business metrics. Levy described the firm’s stance as “leaning neutral to slightly negative” heading into the Q3 earnings call, citing concerns about near-term fundamentals of the electric vehicle maker.

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Barclays is not the only firm that has expressed its concerns about TSLA stock recently. As per previous reports, BNP Paribas Exane also shared an “Underperform” rating on the company due to its two biggest products, the Robotaxi and Optimus, still generating “zero sales today, yet inform ~75% of our ~$1.02 trillion price target.” BNP Paribas, however, also estimated that Tesla will have an estimated 525,000 active Robotaxis by 2030, 17 million cumulative Optimus robot deliveries by 2040, and more than 11 million FSD subscriptions by 2030.

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