Latest / Stock Picking with Fexingo: Individual Equities, Research, and Building a Concentrated Portfolio / Tesla's Rally Ignites Debate on Valuation vs Momentum
Transcript
- Lucas: Tesla is up four-point-two percent this week. The S&P 500 is up one-point-two. The Nasdaq is up one-point-three. So Tesla is outperforming the broad market by a decent margin — but it's doing it while most of the mega-cap tech names are actually down. Luna: Right, I saw that. Microsoft, Alphabet, NVIDIA — all red for the week. Meta flat-ish. So what's driving Tesla specifically? Lucas: Well, the obvious candidate is the Trump-Xi meeting and the push to accelerate U.S. AI in China and Asia. That headline dropped this morning, and it's giving a lift to any company that has a strong AI narrative — and Tesla, with its Dojo supercomputer and full self-driving ambitions, still gets lumped into that bucket. Luna: But Tesla's AI story has been around for years. The stock is down something like forty percent from its 2021 peak. So why now? Lucas: That's the question. And I think the answer has more to do with positioning and momentum than fundamentals. Look at the chart — Tesla bounced off a key support level around 390 about two weeks ago, and since then it's been a straight shot higher. Volume picked up. Short interest is still elevated, so there's a squeeze component. Luna: So you're saying this is a momentum-driven rally, not a valuation-driven one? Lucas: Exactly. And I think that creates a really interesting tension for anyone running a concentrated portfolio. You have to decide: do you chase the momentum, or do you anchor to valuation? Because on valuation, Tesla is still expensive. It trades around 90 times trailing earnings. That's not cheap by any measure. Luna: But if you're a concentrated investor — say you only hold ten stocks — can you afford to ignore a stock that's up four percent in a week when the rest of your portfolio might be flat or down? Lucas: That's exactly the dilemma. And it's why so many active managers end up owning Tesla despite saying it's overvalued. They're afraid of the opportunity cost. But here's the thing — Tesla's auto margins have been compressing. Their Q1 delivery numbers were below expectations. The China market is getting hammered by BYD and other local EV makers. Luna: Yet the stock is up. So the market is looking past those headwinds and pricing in something else. What do you think that is? Lucas: I think it's three things. One, the AI narrative I mentioned. Two, expectations that the Fed might pause or cut later this year — lower rates are good for long-duration growth stocks. And three, there's a general rotation happening out of the names that have already run a lot — like NVIDIA — into names that have lagged but still have a story. Tesla is the ultimate laggard with a story. Luna: So it's a catch-up trade? Lucas: Partially. But I'd argue it's also a bet on Elon Musk's ability to deliver on something big — whether that's the robotaxi, Optimus, or full self-driving. The market keeps giving him the benefit of the doubt. Luna: And that's worked out historically. I mean, the stock is still up enormous from 2019 despite the drawdown. But do you think that pattern is sustainable? At some point, don't the numbers have to matter? Lucas: They do. And that's the tension. Let me give you a concrete data point. Tesla's automotive revenue in Q1 was about 17 billion dollars. That's down year-over-year. Meanwhile, BYD's revenue was about 20 billion — and growing. So Tesla is no longer the undisputed EV leader by sales. Luna: Right, and BYD has much better margins too. So if you're a value-oriented investor, you'd much rather own BYD. But BYD is a Chinese stock, and a lot of U.S. investors can't or won't buy it. Lucas: Exactly. So Tesla becomes the only liquid, large-cap pure-play EV stock in the U.S. That gives it a scarcity premium. And that premium can persist for a long time. Luna: So for our listeners who are trying to build a concentrated portfolio — maybe five to fifteen stocks — how should they think about Tesla here? Lucas: I think you have to separate the trade from the investment. If you're a momentum trader, Tesla is showing relative strength. The trend is your friend. But if you're a long-term fundamental investor, you need a thesis that goes beyond 'AI will save us.' You need to believe that Tesla can grow earnings at a compound annual growth rate of, say, 20 percent for the next decade to justify today's price. Luna: And do you believe that? Lucas: I think it's possible but not probable. The auto industry is brutally competitive. Tesla's lead in battery tech is narrowing. And Musk's attention is spread across multiple companies. I'd rather own a company with a clearer moat and a lower price to earnings ratio. But that's me. Luna: So if not Tesla, what would you buy in this market? The S&P is at 7,491, the Dow is above 50,000. Valuations are stretched across the board. Lucas: I'd look at names that have pricing power and aren't dependent on the next big moonshot. Take Apple — it's up three-point-eight percent this week, and it's on a steady trajectory. It's not exciting, but it compounds. Or consider Berkshire Hathaway — it's actually down half a percent this week, but it's a collection of high-quality businesses trading at a reasonable price. Luna: Berkshire is down? Despite the market rally? That's interesting. Lucas: Yeah, it happens. Berkshire is so large that it often moves on its own fundamentals rather than macro. But the point is, in a concentrated portfolio, you don't need to own every winner. You need to own the ones you understand best. Luna: So for a listener who wants to take a position in Tesla today — maybe they're convinced the robotaxi is coming — what's a responsible way to size that bet? Lucas: I'd say no more than five percent of the portfolio. That way, if it works, it moves the needle. If it doesn't, you're not wiped out. And set a stop-loss — or at least a mental line in the sand. If Tesla breaks below 390 again, the momentum thesis is broken. Luna: So the key takeaway is: know why you're buying. Is it a momentum trade or a long-term hold? Don't confuse the two. Lucas: Exactly. And be honest with yourself about which camp you're in. There's no shame in momentum trading — but you have to be disciplined about exits. And there's no shame in being a long-term holder — but you have to have a thesis that goes beyond price action. Luna: Alright. I think that's a great framework. Next week, we'll look at another stock that's making noise — maybe something in the energy space, since Exxon and Chevron have been weak. Lucas: Good idea. Oil stocks are getting crushed. That could be a buying opportunity — or a value trap. We'll dig into it.