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Traders can be a rough crowd when it comes to stocks that challenge convention…
… especially for a company like Tesla Inc. (Nasdaq: TSLA).
Team Musk is under severe pressure, and as a result, I think there's a great trade brewing.
Tesla has never turned an annual profit, has never paid a dividend, and has racked up cumulative losses of nearly $6 billion since 2010.
Which, of course, begs the question… why is the company trading at nearly $300 a share?
Because CEO Elon Musk is a genius, a visionary, and a pied piper.
He is capable of rallying investors around his vision of the future. Just this morning, for example, Tesla "leaked" a memo outlining plans to boost Model 3 production, to add a third shift at the company's Fremont assembly plant, and to hire roughly 400 folks a week for several weeks running. And, not surprisingly, the stock jumped in early trading.
Here's the thing.
Like many investors, I believe he is the single most innovative and visionary executive on the planet. Even the smallest rumor that he's interested in an idea is enough to send competitors packing.
It doesn't matter whether you're talking about solar power, rocket ships, or tunneling machines. If Musk is interested, you can take that to the bank. Earlier this year he stopped taking orders for a $500 flamethrower after selling 20,000 units… a flamethrower!
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To call Musk a provocateur would be an understatement.
Still, the first rule of investing is never, ever, fall in love with an asset.
Tesla's stock is a train-wreck…
… Conventional metrics do not apply.
… Moody's rates Tesla bonds "junk."
… Tesla is the single most shorted stock on Wall Street, again, according to Institutional Investor's alpha.
… Tesla is funding debt and losses via dilution.
… Competitors are catching up.
… The government's tax credits are burning off for Tesla buyers.
News stories aren't helping, either.
… "Model 3 Production Line Skids to a Halt for Tesla" – Bloomberg
… "Tesla's Cash Crunch Will Intensify as Model 3 Production Shuts Down Again" – Forbes
… "Safety Investigators Boot Tesla from Probe into Fatal Crash of SUV on AutoPilot" – USA Today
… "Tesla Employees Say Gigafactory Problems Worse Than Known" – CNBC
Paul Price, writing for TheStreet, even went so far as to liken Tesla shares to $300 lottery tickets!
That's generous to my way of thinking – considering I actually like Musk and believe in his vision – but what the $300 a share price lasers in on is critical.
That's the balancing point at which shares will trade sharply higher or lower.
The fact that traders are fighting it out at this price point, in light of the headline risk and deteriorating fundamentals, tells me that the easy money is scared.
And a quick look at the charts tells me that right around $175 a share is where the stock will land if those get carried out of the game in the weeks ahead.
Playing that possibility is easier than you may think.
About the Author
Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.