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Car maker Tesla reminds us why stock picking is so hard

The company’s stock price has soared to record heights in recent days.
A Tesla Model X sports-utility vehicle. The company's stock price has tripled in recent months.
A Tesla Model X sports-utility vehicle. The company's stock price has tripled in recent months. [ DAVID ZALUBOWSKI | AP ]
Published Jan. 31, 2020
Updated Jan. 31, 2020

Stock picking is not for the faint of heart. Done right, it requires a lot of research. A little luck helps, too. You have to know when to sell winners and give up on losers. It’s also easy for well-founded conviction to turn to money-losing stubbornness.

It’s why I don’t even try. If professionals struggle to get it right, how am I going to do any better?

The notion sprang to mind again a few days ago when Tesla roared past Volkswagen to become the second-most valuable car company in the world. The stock price of the California-based maker of battery-powered vehicles is up more than 50 percent since December and has tripled since August. The stock took off again Wednesday when the company posted better-than-expected revenue and profits in the fourth quarter.

Related: One day, $318,000. The improbable search for the owner of a Tampa credit union account.

Tesla was worth about $117 billion at the close of the stock market Friday. Volkswagen had fallen to about $90 billion. Volkswagen still makes more vehicles — a lot more. But Tesla is worth more based on stock market values. Toyota remains No. 1 among car makers at $227 billion.

Another comparison: Ford and GM sold more than 5 million vehicles in the United States last year. Tesla totaled about 195,000 (367,500 worldwide). Still, Tesla is worth significantly more than the two venerable automakers combined.

And it’s not like Tesla has been wildly profitable over the past few years. In fact, it’s never turned a profit on an annual basis. Subtract the emissions credits it sells to companies that make gas-powered cars and the company might not have made money last quarter, either.

Tesla’s valuation appears to benefit from being an “it” stock — cool, high tech. The company makes a product — emissions-free vehicles — that many people would like to see succeed. They want to support a company that in their eyes is trying to change the world, even if the fundamentals are iffy.

At times, stock prices are more about expectations than past results. On Wednesday, Tesla said it should “comfortably” deliver more than 500,000 vehicles this year, a 36 percent increase over 2019. The company also said its solar and energy storage business should grow at least 50 percent in 2020.

Tesla CEO Elon Musk.
Tesla CEO Elon Musk.

“Where will we be in 10 years?” Tesla CEO Elon Musk said during the company’s earnings call Wednesday.

A company like Tesla can drive professional stock prognosticators nuts. For months — and in some cases years — a cohort of stock analysts have listed Tesla as a “sell.” In other words, they think the stock price is going to fall. It’s time to get out, they say.

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A JPMorgan Chase Bank analyst has issued 28 consecutive sell recommendations since February 2015, Bloomberg pointed out in a recent report. Tesla stock is up 178 percent over that time.

With Tesla’s stock price soaring so quickly, maybe this time the analyst will be right. Maybe it’s due for a drop. Hope springs eternal — or does it just blind us to reality? Again, it’s why I’m not in the stock-picking business.