Tesla Inc (TSLA)

(A Top Pick Dec 16/14. Up 7.66%.) This is more than a car company. He no longer owns this, but it is something that he would like to have back because it is going to be a really interesting innovative story over time.

Has traded this in and out on his aggressive portfolio from time to time. A big believer in what they are doing. Too volatile and too unproven to get into his regular portfolios. The whole thing is very exciting, but is going to be very volatile. If you are going to buy this, only Buy a small amount and have it in a “special situation” portfolio.

Chart shows a long period of consolidation from 2011 and into 2013 followed by a break out in 2013. There is a broken trend line from 2013 up to 2014 and it peaks across at around $280. He would think that the advance on this is near completion. Wouldn’t want to be long on this.

This is a 200X forward price earnings multiple. Some of these names are great products, great services, but in terms of valuations they are way out there, and this is not a name he can own for clients. Likes the product and feels they have a unique business model, but they have a high burn rate in terms of cash flow.

In order to buy this today, you really need to have a vision of what this company can do and what they can earn over the next 10 years. They plan to sell 50,000 cars a year, which is a very small scale in the scheme of things. The real payoff won’t come until they are able to lower the price of their electric cars. This is not something he would own right now.

His feeling on this is that you are probably better off buying the car rather than the stock. The company has a tremendous amount of optimism built into the stock price. They produce a wonderful product. But looking at the stock in any way, they are many, many hundreds of times more expensive than Ford (F-N) or General Motors (GM-N). Thinks the market got carried away with their response to the product, and bid the stock up to levels that is pure speculation.

Many people would say this is revolutionizing the auto industry, and many are comparing it to what Apple (AAPL-Q) did 10-15 years ago. He would be cautious. Automobiles are expensive products to make. A very capital intensive business. It will take some time for them to gain market share.

He has reduced his holding in this stock on two occasions but still owns it. It is ahead of itself based on revenues and earnings. Revenues are expected to grow 50% next year and the PE is 50 times.. Their giga factory is going to delay itself from all other competitors. They believe their vehicles will become competitive with other non-electric vehicles.

Phenomenal vehicles. A very fast growing company. Trading at over 200X earnings. Has a market cap much larger than some of the very large automobile companies that sell 50 times the number of vehicles a year than this company does.

He struggles when it comes to owning businesses that are not free cash flow generative. They have been very creative in their capital raising and in their management. It will stand the test of time. It will be challenging in this environment, however.

A name that most serious investors don’t take seriously. Thinks we will look back at this and wonder why we haven’t been accumulating for the future. Extremely innovative. Thinks this is going to be like the iPod was 6-7 years ago. He is accumulating this on the margin. There is no perfect time to be buying this. Take very small baby steps with a maximum weighting of about 2.5%, (maybe 1%, 1% followed by 0.5%) and see how it goes over the next couple of months.

Having your engine in the car is inefficient. They think you are better off creating the power in a plant, say a solar power plant, and then distribute that power into a battery in the car. The upside is not based on the fundamentals. He just believed in the car and the founder when he bought it a few years ago. When they get the model III car out in a few years it will complete with the BMW 3 series in price. TSLA-O cars will be cheaper to produce when they get the cost of the batteries down, than the BMW. They will have a higher margin.

Done a great job of bringing the electric car to the market. The collapse in oil does not help them. The car costs $60-$80k and so the average person does not buy it. If you want the world to move to this type of car you have to make it more affordable. They may come out with a $35k car and if they sell those in volume they could do well.

Wouldn't want to own this for the longer term. At 73X next year's earnings, as great as this company is, it is not the kind of stock he would want to own long-term. Way too pricey for him.

Time will tell if this is affordable for the masses. If they could come down to $50k for the price of their vehicles, then it would appeal to the masses. In 20 years the world will look a lot different in terms of cars. The stock will have to go down another 10% still.