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High Flyers – Part 2

On February 7th I recommended three high-flying tech stocks that had taken a nosedive. So two months later, how’d they do?

 

Tesla

On February 8 Tesla was trading at $148. Today it’s a bit over $250 for a gain of about 70%, likely related to new products. First, the new “Model X” SUV is getting rave reviews and Tesla announced increased production capacity. Second is a major order from Hawaii for the Tesla Power-Pack, a new elegant battery providing electric storage for homes and businesses. Third, and most importantly, they introduced the “Model 3”, a mid-priced car (about $35,000 before any tax credits). It’s so hot customers camped in front of dealerships and in the first week alone Tesla received 325,000 reservations backed by $1,000 deposits, all without a dime spent on advertising. While undoubtedly some of these customers will back out, this is the most successful new car launch since the 1965 Mustang which had 418,000 orders over the course of a year. Tesla’s orders for the Model 3 have a potential value of well over $12 billion.

Tesla is quickly becoming the new Apple with a cult-like following and enthusiasm for its products not seen since the iPhone. Pundits claim Telsa’s brand value now exceeds BMW which should lead to repeat purchases and pricing power.

So why should you consider this stock now? While the stock is up 70% since my blog, it’s still below its 52-week high and now there is significant data to support the current valuation.

At some point over the next 10-20 years I believe electric sales will surpass gasoline cars and no one will benefit more than Telsa. They have the best design engineers and are miles ahead on battery technology and packaging and those are the keys to success. No one is even close to where Tesla is today. They will face challenges to ramp up capacity while still posting losses but they are a lot like Amazon which needed time to reach its potential.

While Tesla may still trade lower over the next year, this is one to watch and consider as a long-term investment.

Twitter

Popular with social media users, Twitter has struggled to gain advertising revenue similar to Facebook and Google, largely due to its limited 140 character “tweet” format. It has traded as high as $53 in 2015, on February 8 was just under $15, and today around $17.40 for a gain of 16%. Pretty good compared to the S&P 500 which is up only 1%.

My analysis is that Twitter will continue to be challenged with high costs, huge losses and slow growth in advertising revenue resulting in volatility in its share value. My opinion on the company is unchanged which is to hold off until they figure out a viable business model.

GoPro

GoPro is famous for inventing rugged compact cameras used by adventure seekers.  The cameras enjoyed immediate success and hit a high of $87 and last year traded as high as $65. On February 8th it was $10.50 and today $13.90 for a gain of about 32%. They recently hired an executive from Apple to improve its designs.

GoPro’s current valuation is compelling and in my opinion still worth a look even with the run-up. They have been profitable and do still own the segment. They have ample cash on hand, no debt and should be able to weather the storm.

I personally own both Tesla and GoPro but not Twitter. With any investment decision I encourage you to discuss this with your investment advisor and CPA to see what’s suitable for you.

 

Ray Link is a CPA and holds an MBA from the Wharton School. He recently retired from FEI Company (NASDAQ: FEIC) where he was the CFO for 10 years. He is on the on the Board of Directors of Cascade Microtech (NASDAQ: CSCD), Electro Scientific Industries (NASDAQ: ESIO) and nLight Photonics.

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