“Five Times More Profitable Than Apple with Zero Competition”

What's the "Top Stock of the Month" from Cabot?

By Travis Johnson, Stock Gumshoe, February 5, 2015

This article first ran on September 15, 2014, when almost exactly the same ad was sent around teasing Cabot’s September “Stock of the Month” …

… now, in February, they’re just calling it the “Top Stock of the Month.” Not much in the ad has changed, and the stock is about 10% cheaper now than it was in mid-September. We’ve kept the original comments and discussion at the end of this article, so you can add to that if you like.

What follows has not been updated, edited or revised since 9/15/2014… enjoy!

Does that headline sound familiar? If you’ve been treading the boards here at the Gumshoe Theater for a couple months or more, then it might well — the folks at the Cabot Stock of the Month Report used almost the same headline to tout their last idea.

Which isn’t to say that they’re still pushing the same idea — last time it was “Seven Times More Profitable Than Apple with Zero Competition” and the teaser pitch was for their August stock of the month, which happened to be the restaurant supply company Middleby (MIDD). A fine stock that’s had a spectacular decade.

This time it is, naturally, the September stock of the month — this one also has “zero competition,” we’re told, but is only five times more profitable than Apple. So who is it? What’s the stock that Timothy Lutts says we should buy “Before it Jumps Another 1,061%?”

Let’s have us a look-see.

The five-times more profitable bit is because the stock is up 1,000% or so during a time when Apple was up 200% or so — not a measure of the actual profitability of the company, but of the past rise in the stock. And, of course, like Middleby the stock likely has little or nothing to do with Apple — they just know that more people own and follow Apple stock than almost any other security, and are very aware of its past success as a stock, so dropping the name will get your attention.

So … how about some specific clues? This is what we get in the ad:

“… five times more profitable than Apple, handing investors 1,061% annual average gains since June of 2010….

“Analysts expect the company to deliver another 145% earnings for Q3 but also deliver 213% earnings growth for Q4….

“… the company has virtually no competition in its space….

“it’s one of the biggest profit takers in the specialized lithium battery sector.

“I guarantee you’ll never guess. Yet, this is the kind of company that has revolutionized the battery industry since Benjamin Franklin coined the term battery in 1748 and Thomas Edison created the first alkaline storage battery in 1901.

“But instead of powering a flash light, cordless drill, or wireless telephone, these batteries can not only power your car and space craft but even your entire home.”

More on this specialized battery company?

“it’s no wonder why this company is about to break ground on a $5 billion advanced battery construction facility that is projected to not only give electric cars a 200-mile range on one charge but also at a much, much lower price.

“The result: A boom in sales of electric and hybrid vehicles.

“Frankly, that’s why their stock has risen whopping 1,061% since 2010 and why we expect this company to repeat its great growth over the next four years.”

Really? OK, well, I guess we’re just going to start off a bit easy on this brisk, Fall Monday — we don’t even have to pull the tarp off of the ol’ Thinkolator to tell you that, yes, this is … Tesla Motors (TSLA).

What a mysterious stock, right? Do you believe the Cabot folks when they say that “99 out of 100 Americans have never heard of it?” That’s just idiotic. I know we live in a little bubble of people who are obsessed with investments, and that means we’re a self-selected group of people who probably aren’t terribly worried about where our next meal is coming from… but is it really possible that 99 out of 100 Americans have never heard of Tesla?

OK, fine, I know that’s not the point — it just rankles a bit. TSLA is absolutely one of the most spectacular investments of the past four years, it rose from just under $20 a share to the current price of somewhere around $250, and if Elon Musk opens his mouth again tomorrow it could easily go up or down by another 20% — Tesla is a story built on growth, technology and charisma, not (yet) a predictable or profitable or reliable stock.

And yes, I confess that I completely missed the appeal of Tesla both when it was trading at $35 18 months ago and looked crazily overvalued, and in all the months since when it shot up and down on news of vehicle production rates, status of the next model, fights over their direct-selling model (which is illegal in some states), news about the potential “Bluestar” lower-cost car that they’ve been planning for years, and, of course, the plans for their mega $5 billion “Gigafactory” that’s designed to dramatically bring down the cost of lithium batteries to make a lower-cost electric car possible.

Here’s more from the ad about Tesla:

“And it’s because they dominate this sector no differently than Apple dominates digital music, Sirrus dominates satellite radio, and Space X dominates commercial space in the United States—only their profits are much, much bigger.

“So it’s no wonder that the world’s top 20 institutional and mutual fund holders own nearly $12 billion worth of this company’s shares.

“They recognize the same thing we do here at Stock of the Month: This is one company that is completely locked in for future growth both fundamentally and technically.”

I still find it very difficult to analyze Tesla as a car company, because nothing makes any sense at all. A car company can’t lose 5% on every car they make and still trade for 15X sales, can it? It’s just silly. I would have bet against Tesla a year ago or two years ago, when it was far cheaper, because it seemed impossible for them to live up to the promise and keep the financing going for this massive enterprise for the many years it will take to build to sales levels that can bring genuine and predictable profitability.

But, it turns out, you should never bet against a product that is slavishly adored by its customers, and you should never bet against a visionary like Elon Musk in a bull market. So Tesla is making a fantastic luxury product that is almost universally adored, and it’s incredibly expensive, and the competition in the electric car space is growing apace from Tesla “peers” (at least when it comes to the socioeconomics of their customers) like BMW and Audi as well as from dozens of others who have less compelling brands, and their next product, the gull-wing Model X SUV, is probably also going to be a fantastic hit… so where will the stock go?

Beats the heck out of me. Sometimes I just don’t get it — into that category of “Travis doesn’t get it” we can also toss Amazon (AMZN), with profit margins a sliver of that of Wal-Mart or your beleaguered local supermarket owner but growth that would make either of those retailers drool and a PE of 100+. So it’s quite possible that a ruling of “Travis doesn’t get it” is an excellent contrarian buy signal — I thought Amazon was too expensive at $50, even though I order something from Amazon almost every day. I think Tesla was too expensive at $40 and is just silly at $250, but I’d love to test drive one — or even buy one, if tomorrow the floodgates open and we get 80,000 new Irregulars joining us 🙂

Zeke Ashton had a pretty good presentation at the Value Investing Congress back in April, comparing BMW to Tesla as he was recommending BMW Preferred Shares, and this is a small excerpt of the notes I took that day:

“Tesla is more of a poster child for this environment than any of the other high price/sale valuation stocks … and that’s because it’s a car company, it does NOT have a scalable business model. Growth will take a tremendous amount of capital.

  • Market caps: Tesla $30 billion, BMW $82 billion
  • Vehicles sold last year: Tesla, 23,500, BMW, 2 million
  • Next year: Tesla 35,000 expected in 2014, BMW 5% increase on the 2 million.
  • Revenue: Tesla $2.5 billion (non-GAAP), BMW $104 billion
  • Net income: Tesla $100 million (non-GAAP), BMW $7 billion.
  • Gross margin: Tesla 22.7%, BMW 20%

“Last year, Tesla was not in the auto sales business — they were in the business of selling regulatory/zero emission credits. They deduct it from their cost of sales, which ramps up their gross margin. That’s 8% of revenue. It’s also 42% of their gross margin. Their profits were entirely due to regulatory credit sales.

“So what’s going to happen? Competition. BMW has been preparing to enter the electric vehicle market for a long time, and they’re entering the market now. The i8 next year will compete directly with high-end Teslas, much snazzier.”

It looks like he has published his Powerpoint presentation now for anyone to see, so you can check that out here if you’re interested. I found it pretty compelling, particularly the notion that Tesla’s growth potential has to be held up against the fact that growth will demand large capital investments not just for the Gigafactory, which will be partly paid for by suppliers like Panasonic and perhaps by other battery customers, but for actual manufacturing capacity at their plant or possible new plants, etc. etc.

That doesn’t mean Tesla is going to be a bad investment, of course, it’s up another 40% or so since Ashton’s presentation in April and is up several hundred percent since the last time I said it was too expensive, and it is still exactly the kind of thing that growth investors like most of the Cabot folks go for. I just don’t know how to guess at what valuation multiple makes sense for a story that’s built around a hugely popular luxury car, a revolutionary battery factory that just broke ground and should be operating by 2017, and a 2017 or 2018 “lower cost, higher volume” model — the fact that 10X sales seems silly doesn’t mean that it can’t go to 15X sales (where it is now), or to 25X sales… there’s no rule that says investors can’t buy whatever they want to buy, and they often want to buy stories that seem like they can grow forever. If you can figure out what you think Tesla is worth, feel free to let us know with a comment below.

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65 Comments on "“Five Times More Profitable Than Apple with Zero Competition”"

avatar

vivian lewis
Guest
0

It is not yet fall although I admit it is cool where I am. And you are not treading the boards; you are writing a financial newsletter. treading the boards is show biz talk.

Deborah G Flynn
Guest
0

If you don’t like Travis’s humor than what are you doing here? I and many more here appreciate his style. Really I got it. AND one of the reasons Travis has such a loyal following [and PAID subscibers] is that we like and trust him.I’m offended sorry I just am. Cabot has a newletter you pay for BUT when you sign up for one it is simply a scam to get the next big info IF you sign up for another.With Travis we can hand him the teaser and get the name WITHOUT buying 7 newsletters.

LostOkie
Irregular
230
LostOkie

From what I can tell, what she’s usually doing here, , is pedaling her little newsletter. I for one wish she’d go do it somewhere else.

midorosan
Irregular
55
midorosan

Vivian get a life and if you don’t like Travis’s style then sling your hook as we say in Gloucestershire.

Scotty
Guest
0
Scotty

Tesla will only sell 35,000 cars this year in a total market sold of over 17,000,000 in 2014…. they are a nothing. As soon as BMW releases their electric car (and other car companies will release others shortly) Tesla will not be valued at the 34.8 BILLION market cap it currently has…

vivian lewis
Guest
0

Oops. maybe you mean Elon Musk is treading the boards. by the way, so is Jack Ma of another share, Alibaba.

bj
Guest
0

Did you see the comments elsewhere about Alibaba? Comments were basically that Alib sells VERY SHODDY merchandise with VERY POOR customer service.

Klaus Kaiser
Guest
0

For my take on it, see:
1. Fads Come and Go — is the Electric Car a Fad?
http://canadafreepress.com/index.php/article/fads-come-and-go-is-the-electric-car-a-fad
and
2. The Lithium Squeeze
http://canadafreepress.com/index.php/article/the-lithium-squeeze

jonomalley
Member
86
I love cars and spend a good amount of money on them, and am relatively young (38). As long as there are gasoline powered engines and a gallon costs less than a #1 at McDonalds, I’ll never buy an electric car. There are a litany of reasons (no beautiful sound, winter battery issues in the north, limited distance, long recharge times, etc etc). This will be a boutique industry for a long while to come. Think of how long it will take for it to be justified to put charging stations in rural areas! Might not sound like a big… Read more »
Deborah G Flynn
Guest
0

I don’t like them because Obama likes them LOL

arch1
Irregular
7036

Agree,,,,You have many like thinkers. Tesla nice tho expensive toy.

Advocacybz
Guest
0
Advocacybz
Those who continue to overpay for this sector seem to have a blind spot for two major issues with the Electric car, first there is a major problem of infrastructure buildout for recharging stations (sort of like the expansion of the gas stattion), it will take 100’s of billions and several decades for this infrastructure buildout. Secondly those who somehow think the lithium battery is magically going to hold charge for longer periods of time seem to discount the history of the lithuim battery. Is there a phone or computer that yet can really hold a charge for any reasonable… Read more »
Lulu
Irregular
840

Agreed, I drive 25 kilometers just one way to work……great for small European cities not good for rural canadian cities……buy a smart car!

lobo85
Member
7
lobo85

It would be nice if people kept their politics out of this blog.

bj
Guest
0

WHERE is the Tesla car model that low to medium income people can afford to buy? Wife and I are retired basically on SS, a VERY small pension and $10,000 RMD from our IRAs. We own a 2007 Chevy Equinox LS that we love. We can buy a new 2014 model for $25,000 to $30,000. Tesla Model III is estimated to cost upwards of $35,000 when (IF) it ever appears. Right now affordable (to us) electrics are glorified GOLF CARTS not NEARLY as practical as our Equinox!

Fabian
Guest
0
Fabian

It’s a difficult stock because it trades on a story and BMW is going to be a very dangerous competitor. As to Cabot, from observation, they use fundamentals / story to justify the price. It’s a mix of technical momentum with fundamental but as soon as the technicals are bad, the fundamental story (all that growth, great products, internationalization, etc.)
vanishes like a politician’s promise.

Oli R
Guest
0
Oli R

About $20/share….why don’t they report GAAP earnings!…because they don’t have any! It is a major RED FLAG when a company doesn’t want to report GAAP eps. What are they trying to hide? The emperor has no clothes!

Robert Hively
Guest
0
Robert Hively

Thank You, Thank You, Thank You! I have been waiting for an expert to advise “the Emperor has no clothes!”. And you nailed it for Tesla! The electric car is like a hot bath; after you’ve been in one awhile, it’s not so hot.

tim
Guest
0

ALL elect. cars are JUNK

Specialk
Guest
0
Specialk

TSLA is not the September Cabot stock of the month, though it may match the description in this advertising.

John M
Guest
0
John M
I plan to own a Tesla when the ‘cheap’ one comes out. The thought of driving around with a 30 min stop every 3 or 4 hours and not even paying for electricity works for me… However, I believe a lot of people that are investing in Tesla do so because they want to see it succeed. Will it? Who knows. The current price has to be because everyone wants to see a fairy tale ending, and, if the Great Recession II doesn’t arrive it might happen… in 10 or 15 years. All the best to IRONMAN, GOOD LUCK!
Josey Wales
Guest
0
Josey Wales

Good grief. Why would anyone risk their money on such an over-inflated hot air balloon of a stock? Instead of dumping $10,000 on the flames of this stock, just put $1,000 down on ten other smaller pump and dump stocks. You will probably lose all of your money in either situation, but you will get to gamble longer with the second option.

Deborah G Flynn
Guest
0

Why are you attacking Travis today? out of sorts or sort of out….to linch?

Deborah G Flynn
Guest
0

ooooops typo I meant “LUNCH” I too have dry humor.

sooku
Member
36

Will someone tell me when to short Tesla? Musk said it’s too high.. probably to do what he can to keep the TSLA bubble from vanishing in smoke. It’ll be time soon, I think.

Dave
Guest
0
Dave

Yesterday.

sooku
Member
36

By the way, YHOO more than doubled for no earthly reason in the last quarter of 1999. Then, all hell broke loose. I’m looking for the same point in TSLA.

Joan in Houston
Guest
0
Joan in Houston
Subhash, I rarely perform bearish transactions. I spend most of my time on focusing uupn positive things, such as new product developments, and earnings improvement,s and dividend increases, and favourable management changes. If and when you want to short something, or to buy puts, watch for stocks performing badly in the market AND with a dreadful news background. Do not try to guess tops in popular or well-performing stocks — that is too uncertain. Let the market tell you what to do. Do not guess the market. I am a grey-hair, by the way.
jackarias
Irregular
2
jackarias
I got killed financially in the dot.com bubble of 2000. At that time (Y2K) there was no fear. I see the same thing happening again. Yes the VIX, one measure of fear is at 14 up from 10 but until it hits 20 there will be lots of greed and little fear driving the market. Debt, especially margin debt is at an all time high. BUT when the market comes to it’s senses as it did in 2000 these high fliers will drop like a knife and I for one don’t want to be the one trying to catch the… Read more »
arch1
Irregular
7036

Could not say it better,,,,still if knife can be grabbed on first bounce?????

Sharon Schreiner
Irregular
3499
Sharon Schreiner
I decided that Alibaba was too like Tesla and Amazon not to try at least a little nibble. Not so large that I will cry if it drops to nothing, but enough to smile if it shows the same irrational tendencies as the other stocks. I also pay attention to their goals and past performance. Alibaba grew from the determination of a small group led by a determined man who plans to take it globally. Africa needs an Alibaba, and he intends to take it there. One day the stock price of today will look cheap. In the meantime, if… Read more »
who noze
Guest
0
who noze

what happens when the water hits mthe fan :”:}{:”
: ZZ xz;’

Gene F
Guest
0
Gene F
There is a lithium battery in the R&D stage which potentially will obsolete the Tesla/Panasonic gigabattery factory. No indication in press release when this battery is expected to be ready for production. Read more at: http://phys.org/news/2013-06-zsw-lithium-ion-battery-years.html Officials at Germany’s Centre for Solar Energy and Hydrogen Research Baden-Württemberg, (ZSW) have issued a press release describing improvements they’ve made to lithium-ion batteries. They claim their improvements allow a single battery to be recharged up to 10,000 times while still retaining 85 percent of its charging capacity. Such a battery, if used in an electric car, they note, would allow its owner to… Read more »
KennyG
Irregular
3321
KennyG

Interesting company. From what I can tell, it’s not an invest-able company as it seems to be a consortium of scientists and engineers working with government grants. Do you know if this is correct Gene?

omcdac1
Irregular
458
omcdac1

KennyG – Good to see you on this blog.
TSLA is good for those who brought stock at $35 to $50.
I am watching this when TSLA stock was $55
People those who believed in ELON MUSK they become rich!!
I got in late 🙁
if TSLA fall back to $150 I would say buy buy.
Long TSLA
Thanks
Om

arch1
Irregular
7036

ELon Musk very clever,,,,may still have a rabbit or more in his magic hat.

gard
Member
197

If you bet on TSLA then to my mind you are betting on Elon Musk and I would never bet against him. I think Tesla will go as high or higher than Apple in its heyday before the split, say $700 ish. I’m willing to bet on it.

David B.
Irregular
834
David B.

Anyone who invests in any Elon Musk company seems to become indoctrinated in more of a religion than an investment. The current TSLA price is only for “true believers.” Don’t get me wrong, the guy is truly an innovative genius and I admire him. I just am not buying TSLA shares at the current insane valuation no matter how many SA articles say it’s a bargain even at $300. Maybe those guys/gals are correct but I don’t buy when I see insane P/Es. Travis and I are on the same page with this one.

vivian lewis
Guest
0
for the record I am an irregular, meaning that I pay for my access to the gumshoe. Some people wonder what IRR means above peoples’ names. That’s what it means. And I am therefore not only peddling my own newsletter when I comment on inaccuracies or bad metaphors; I am legitimately expressing my opinion as a subscriber not just to the free version. As Travis noted I live in New York City and therefore do not run a car as we walk, bicycle, or ride public transport in the Big Apple. so I have no real insight into Tesla and… Read more »
dcohn
Irregular
168

Funny
Most of us actually have IRR icons when we post. We do not wonder because your mouse hover tells all.
I am a New Yorker as well. I drive a car in Midtown as well as walk, and cab and subway.
You are unimpressive being rude. I worked in the NYCity Garment Center from 1980 until 1998 when I went full time into the IT industry as Regan sold out our industry. Trust me when I know what rude is and when you learn you stop doing it.
LEARN!

Solyom
Guest
0
Solyom
I think the problem for Tesla will be two fold. The plug in hybrid. Most of use do not travel more than 40 miles a day in our cars therefore a plug in hybrid makes sense (and cents) for many of us. The other will be the mini diesels. My daughter drove one in Ireland and was getting about 80 mpg. Fiat and Mini Cooper and Nissan all have mini diesels. I had a diesel Rabbit that got 52 mpg ( I keep track with every fill up). They do very well with emissions on mile driven bases but not… Read more »
John E
Guest
0
John E

Remember the gallons in Ireland are bigger than in the US, and nothing to do with the Guiness. One UK or Irish gallon is 1.2 U.S. gallons so that 80 mpg in Ireland is “only” 66.7 mpg in the US.

dcohn
Irregular
168

WOW I had no idea they used Gallons in the Metric system. I thought it was only liters.
Is is 4 liters to a metric Gallon??
Interesting tidbit.

bj
Guest
0

1 US gallon is 3.785 Liters.

John McAuliffe;
Guest
0
John McAuliffe;

It is spelt litres and the gallons we use are ” imperial” As far as I can remember there are 0.9 c. US gallons in an imperial gallon.
Interesting discussion on Tesla very enjoyable banter

vivian lewis
Guest
0
vivian lewis

okay vivian being in the newsletter business cannot afford a car even a
Tesla using no gasoline because parking the thing in Midtown Manhattan costs more than my office rent. All of you are welcome to make rude remarks. water off a duck’s back.
I promote my newsletter on this site because, maybe in error, I think the gumshoe readership are smart enough to go global. we also offered a free test drive to readers who signed up. I am not promoting to the hoi polloi but to the intelligentsia and the gentry

arch1
Irregular
7036
The problem with any electric vehicle or hybrid lies in the batteries. We have not yet found a way to make reliable,efficient ,long lasting and lightweight batteries. I have a basket full of various types that advertise rechargeable UP TO a 1000 times that failed after 2 to 10 charges and now are hazardous waste. In a battery pack such as Tesla uses there are redundant batteries but soon or late the power capability begins to drop and more frequent charges are required. If/when that problem is solved TSLA may produce a viable transportation alternative. As of now it is… Read more »
getdastock
Irregular
5

Tesla is a company I avoided investing in since missing it in the $40 range. However, my wife has been relentless in telling me she wants it in our portfolio, which lead me to purchase it on it’s recent pullback to $200 a share (due to it missing estimates in a HUGE way). My wife’s constant insistance of owning stock in the company is a good representation of the common persons love affair with Tesla regardless of financials. Not that my wife is a common person : )

racerx43
Irregular
0
racerx43

I bought in recently at $150, and have driven the Model S (I race motorcycles that are fast – and this thing is fast!) and my wife wants the newly debuted Model 3 Which almost 250,000 people just put a refundable $1000 deposit in Elon’s bank account for a car that won’t be here until 2017! I agree with Travis – it’s all irrational, but somehow Elon’s idea of Electric is too real – with Audi top dog saying – he regrets it but Tesla got it right – the rest are catching up… that’s also real.

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