By Amrith Ramkumar
Eric Perkins believes Tesla Inc. shares have climbed too
quickly, to heights the company's earnings can't sustain. He's
still not selling.
A 44-year-old living outside San Diego, Mr. Perkins says he
normally would sell to lock in a profit when a stock quadruples in
four months. But after missing past Tesla rallies, he is determined
to hold onto his shares, which now make up about half of his
roughly $1 million portfolio.
"I don't see anything stopping the momentum, at least until
earnings are announced," said Mr. Perkins, who drives a Tesla Model
X. The electric auto maker reports second-quarter earnings on
Wednesday. Shares hit a record of $1,546 this past Wednesday,
giving Tesla a market value of $287 billion -- higher than that of
titans like Intel Corp. and Home Depot Inc.
Tesla is one of a handful of stocks whose recent surge continues
to power the broader market higher. These companies like tech
stalwart Amazon.com Inc. and vaccine maker Moderna Inc. have lifted
the Nasdaq Composite to fresh records recently and helped push the
S&P 500 up 44% from a multiyear low hit in March.
Momentum stocks are popular among investors who buy shares
because they are rising and sell stocks that are falling, with
little regard for economic or market fundamentals.
Some momentum stocks, like Tesla, have yet to record a full-year
profit, but their future potential and recent stock performance
have still attracted hordes of buyers in recent weeks. Many of
these investments are mainstays for individuals using apps like
Robinhood. They have increased their trading activity lately,
buying all sorts of things that worry professionals, including
shares of companies on the brink of bankruptcy.
The swings are a concern for analysts who worry that the gains
could reverse suddenly, sending major indexes into a tailspin and
even destabilizing the economy because of how many investors hold
the stocks. If it records a fourth consecutive quarterly profit
Wednesday, Tesla could earn inclusion into the S&P 500, making
it even more widely owned through funds tied to the index and
increasing the company's sway over financial markets.
Retired hedge-fund manager David Rocker worries that big gains
in shares of unprofitable companies represent market manipulation
and excesses in the financial system even more extreme than the
late 1990s dot-com bubble. Mr. Rocker was known for short selling
-- wagering on falling stock prices by borrowing shares, selling
them, then aiming to repurchase at lower prices. He argues that
government and central-bank stimulus is contributing to the
phenomenon, adding to a mountain of debt that will eventually hurt
the economy.
"This is going to end in tears and do enormous damage," he
said.
Short sellers of Tesla and other so-called momentum stocks have
suffered losses lately, forcing them to buy shares at higher prices
to close out weakening positions, a trend known as a "short
squeeze" that can add further fuel to rallies.
Investors this week will be monitoring a flurry of earnings
results from companies tied to momentum and popular among retail
traders including Tesla and Microsoft Corp.
"People want to pile into what's working today," said Michael
Lippert, who manages the Baron Capital Opportunity Fund that counts
both companies as large holdings.
Amateurs aren't the only ones chasing returns in momentum
stocks. Quant funds and other strategies that trade factors such as
momentum and volatility have grown in popularity in recent years.
Some of these funds along with individual investors are often quick
to buy stocks that are doing well, then can sell just as fast when
trading conditions shift.
This was illustrated on Monday, when stocks erased gains after
California said it would roll back its reopening amid a surge in
coronavirus cases. Tesla rose as much as 16% before closing lower,
while the Nasdaq ended the day down 2.1% after advancing nearly 2%
earlier in the session.
Despite the jarring moves, many remain confident in momentum
stocks because many of the companies are perceived as beneficiaries
of trends like remote work that are being accelerated by the
pandemic. About 74% of fund managers surveyed in a recent Bank of
America monthly poll said owning tech stocks was the most crowded
trade in the market, the highest percentage of any trade going back
to 2013.
"We are in a market that is incredibly bifurcated between the
winners and losers," said Holly Framsted, head of U.S. Factor ETFs
at BlackRock Inc.'s iShares division.
Mark Castro, a 34-year-old nurse from the Philippines, shares a
roughly $10,000 portfolio with his wife concentrated in Netflix
Inc. and vaccine companies Moderna and Inovio Pharmaceuticals Inc.
He tries to capture short-term gains in stocks based on their
trading patterns, so he buys and sells often, particularly when
activity in a stock is frenzied and volume rises.
"With volume I can ride the momentum," he said. "It's a powerful
force."
William Beyer began trading stocks in April after receiving his
stimulus check from the federal government. The 28-year-old in
Northfield, Minn., has a roughly $2,000 portfolio featuring stocks
like fuel-cell company Plug Power Inc. and Chinese electric-vehicle
maker NIO Inc.
After losing money earlier in the year trading based on
momentum, Mr. Beyer is now trying to incorporate trends like 5G
broadband technology into his strategy.
"It is very risky," he said of short-term momentum trading. "If
you don't get out at the right time, it's going to turn red really
quickly."
While he and many other investors eventually expect a reversal
in Tesla shares as a result, believers in the company like Mr.
Perkins outside San Diego remain hopeful.
"Taking money off the table at this point would be a mistake,"
Mr. Perkins said.
Write to Amrith Ramkumar at amrith.ramkumar@wsj.com
(END) Dow Jones Newswires
July 19, 2020 05:44 ET (09:44 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
Tesla (NASDAQ:TSLA)
Gráfico Histórico do Ativo
De Out 2024 até Nov 2024
Tesla (NASDAQ:TSLA)
Gráfico Histórico do Ativo
De Nov 2023 até Nov 2024