Why the Trick to Making Money from Tesla Could be in Lithium Stocks

Whoosh! Did you hear that? That’s the sound of Tesla’s share price rocketing back up. I guess the market likes the news it’s hearing. Bloomberg reports that the company has now received more than 325,000 reservations for its latest car — the Model 3.

Markets can swing on a dime, that’s for sure. It’s certainly a change from early February. Back then the Stansberry Digest cited analysts at JP Morgan who had slashed their estimates for Tesla’s fourth quarter earnings in late January, and put a price target of US$180 on the stock. That was down from where it was trading at the time. They revised their forecast on slower expected sales of the company’s current fleet.

The Model 3 Saves Elon Musk

They were right about the price, for about a couple weeks. In fact, TSLA made a low of US$141 on February 9. However, in yesterday’s trading it closed at US$257.

See for yourself…

Tesla Bounces

Source: Market Analyst

Click to enlarge

Here’s the catch. The analysts were actually right in terms of the fundamentals. The company did miss its forecasts for the first quarter, due to various reasons.

That hasn’t stopped the stock from running, though.

Tesla chief Elon Musk can thank the Model 3 for that. The Model 3 is Tesla’s forecasted move from the luxury end of the market to the affordable range.

Each US$1000 deposit customers put down to reserve a vehicle infuses the company with working capital at no cost. It must be over $350 million now. Nice.

Of course, this is a car that won’t even start shipping until late 2017 in the United States, and even later in Australia. But even that’s not guaranteed.

In fact, there’s plenty of scepticism that Tesla can deliver on time and with quality, after the company missed its first quarter global sales of its current cars in production.

But there’s enough buzz around electric cars to keep the market tantalised with the growth potential of a major market shift in this direction.

Just on that, the ABC reports that Queensland now has its first solar powered electric car charging stations. They’re on two University of Queensland campuses, and free for public use.

The ABC article quotes the UQ manager of Energy and Sustainability as saying, ‘Hopefully this is the start of an electric vehicle highway throughout the state.’

How to play the electric car trend — for now

We’ll see about that in time. Suffice to say Tesla is a tricky stock to judge right now, from both a fundamental and technical standpoint.

But there’s no doubt that whatever you think about electric cars in general and /or Tesla, it’s driving one sector on the share market: lithium stocks. That’s been the way to play this trend so far.

Tesla batteries are lithium, and the company is doing everything it can to bring down their cost. That’s included building a ‘Gigafactory’ in the Nevada desert.

I’ll give you an idea of how strong this sector has been. My colleague Terence Duffy and I profiled seven lithium stocks in a report called Electric Gold, which we released on 4 January this year.

The average gain from those stocks was 93.5% at the end of trading Wednesday. Only one was down. The S&P/ASX 200 fell 4.4% in the same time.

Granted, these are at the speculative end of the market. Most of them have projects that aren’t even in production yet. But it does raise the question of whether or not lithium is in a ‘bubble’.

I’ve been around the market long enough to know every year there is some ‘hot’ commodity from which great extrapolations are usually made.

Stories start to come out about people who’ve cashed in large amounts of money riding the boom. Then the herd tramples in, it all fizzles out, and everyone moves on to the next story.

How to navigate the lithium market

Will the same thing happen to lithium? At some point, no doubt. Whether or not that time is now, I’m not sure. Certainly the action has been hot in Australia, but I haven’t seen a great deal of coverage pop up in the US or the UK financial world on this trend.

That’s largely due to the fact that the lithium stocks are mostly Australian. We also have to consider that it’s not as if lithium is the only possible source for batteries and electric cars, anyway. There are competing technologies.

In fact, two of our guys here at Port Phillip are not prepared to back the lithium story with any recommendation. Sam Volkering of Australian Small-Cap Investigator and Jason Stevenson of Resource Speculator both have their own analysis and arguments for staying clear of this trend. That’s the nature of an independent publishing house where editors have the freedom to back their own arguments. We don’t always agree on everything.

And yet the lithium trend is compelling.

How to deal with this? Well, I can only speak for myself. I overlay charting analysis of every stock I consider. The chart reflects what the market thinks. So, for now, the charts don’t say sell when it comes to lithium stocks. Of course, that could change tomorrow.

The broader point is that I’ve found it more profitable in my own trading to go with the market. That frees me up from deciding who is right and wrong when it comes to opinions. I can’t make money off an opinion. That’s why the great trader WD Gann said to be neither a bull nor a bear. Just go with the trend. (Go here for more on this type of trading).

The boom brewing in the world

WD was very wise when it came to markets. He studied history extensively. Some might even say obsessively. Later in life he said that after every bust in history some new technology or energy source came on to spark the next boom.

These days we’ve got both.

It’s one reason why my colleague Phillip J Anderson and I are so bullish on the world. I told you yesterday how this is showing up in land values all over the world. The property market is already taking the gains from the prodigious wealth creation going on all over the world.

Few people perceive this, because it flies in the face of most mainstream reporting. But nobody ever made money listening to the mainstream.

You can’t get an objective view on anything, for starters. You might care to note that in the wake of the Panama Papers both the Chinese and Russian governments are cracking down on reports linking the leak to family members of their ruling elite.

In fact, in a previous issue of Cycles, Trends and Forecasts we discussed Vladimir Putin’s army of internet trolls and hackers, who spend their days distributing propaganda and misinformation.

The vanity we have in the West is to suppose that kind of thing doesn’t happen here as well. The most suspicious thing about the Panama Papers so far is the absence of any notable US figures so far. Apparently America’s rich are different to the rest of the world’s.


Suffice to say, for your best shot at how to navigate the markets, the trends and the lies of the financial world is to listen to a man whose done it for 30 years and prospered. At the end of the day, opinions and theories count for nothing — money talks.

Tomorrow, you can find out how he’s done it. Keep an eye on your inbox this weekend.

Callum Newman

Callum is a feature editor for Money Morning. He covers areas of interest arising from world markets and the global economy that could mean new investment opportunities for Aussie investors.

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