The stock market is off to a great start in 2017 and even with last Wednesday’s drop, the markets have provided this return with little volatility. The big driver in 2017 has not been President Trump or Washington, but rather technology. Tech stocks have set a blazing pace year-to-date, Tesla stock is up 46%, Apple is up 32%, Amazon is up 28%, Netflix is up 26%, Alphabet shares are up 20%, Facebook is up 27%, and Microsoft is up 9%. We will see where the sector ends the year, but right now investors can’t seem to get enough, adding to the sector at the fastest rate in 15 years (as seen from the chart below).
We own several of these companies directly in our portfolios while we are unlikely to ever recommend others based on our style and philosophy. That said, we understand and appreciate individuals that help drive economic growth -- the risk takers, innovators, and entrepreneurs that will disrupt the status quo.
I thought it might be interesting to look at an example to compare and contrast the ‘new’ company versus the ‘old’ company. Tesla stock recently overtook Ford and GM in total market capitalization (total value of all shares). The market cap for Tesla is $51 billion versus Ford’s $43 billion and GM’s $49 billion. While it is true Ford is unlikely to triple car sales in the next twelve months, there are some stark differences between the companies. Ford sold over 1,370,000 million cars in Q4 2016 while Tesla produced 24,882. Ford’s business is narrowly focused on autos and trucks, while Tesla is investing in renewable energy, batteries, and autos.
An article this week stated Tesla’s solar roof will pay for itself. The company has a neat calculator on the website; I entered my address for fun, and for an initial out of pocket cost of $87,000 I can reroof my house with Tesla solar panels (I assure you, my house is not as big as the Dallas Cowboys’ AT&T Stadium). The solar roof could provide an energy savings of $57,900 over the next 30 years. With a further generous government-provided tax credit of $21,000, the roof almost pays for itself -- a net cost of only $8,100. I am not what you would call an ‘early adapter’, so we will leave it to the neighbors to take the first step.
Back to the point of this missive. When we look at the financials, Ford generated a net profit of $4.6 billion while Tesla net loss of $0.7 billion. In the end, Tesla may end up being the single largest auto/battery maker in the world. It appears some investors believe it’s already happened, with a current market cap valued at 20% more than Ford and less than 2% of Ford’s total auto production.
Sometimes it’s difficult to avoid getting caught in the enthusiasm for a company or an idea. We spend a lot of energy and time learning to resist temptation and insure the actions we take are in your best interest, both today and down the road. Let Security National Bank Wealth Management help you learn to place the proper value on the ideas in the marketplace and to build the portfolio best for you.
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