Star-Crossed Rivals: Tesla’s Tie-up, Nio’s Knockout

Tesla is joining the S&P 500, all at once. It’s a nice, simple resolution for many index-fund managers, but it could wreak havoc on your portfolio.

Tesla’s Distant Early Warning

The world weighs on my shoulders. But what am I to do? You sometimes drive me crazy. But I worry about you. — Rush, “Distant Early Warning”

Great Ones, I have a red alert (red alert) for you today. And if you’re a Tesla Inc. (Nasdaq: TSLA) investor, you’ll want to pay close attention.

S&P Dow Jones Indices announced today that Tesla will be added to the S&P 500 Index all in one shot on December 21. To the overall market and the talking heads on Wall Street, this is a good thing — nay, a great thing!

“This is a better outcome than what investors overall had expected,” said former Aegon Asset Management Chief Executive Gary Black. Investors were worried that TSLA would be added to the S&P 500 piecemeal to lessen the impact. Tesla’s valuation stands at more than $538 billion, making it the biggest company ever added to the S&P 500.

Black called the move “simple and easy to understand.” However, it does create a singular issue for both Tesla investors and S&P index-tracking fund managers.

You see, speculative Tesla investors have bid the stock higher ahead of its S&P 500 inclusion — more than 40% since November 16. These speculators hope to cash in when S&P index-tracking funds are forced to buy TSLA.

It goes like this: These funds track the performance of the S&P as a whole (or specific sectors). To do so, they have to own a certain amount of TSLA shares. Ahead of TSLA’s addition on December 21, these funds will need to buy TSLA so they keep accurately tracking the S&P 500.

Since December 21 falls on a Monday, December 18 will be quite a volatile and busy day for TSLA. But after that influx of buying, demand will crater. So, too, will Tesla stock.

Remember, this has nothing to do with Tesla as a company, its business model, its profits or its performance. This rise and fall is all a function of market technicalities and investor speculation. And it’s happened before to Yahoo back in 1999 and to Facebook in 2013.

If we follow those two examples, Tesla shares could drop between 10% and 20% after their inclusion in the S&P 500.

Right now, that means TSLA could fall from its current perch near $580 to as low as $464 — breaking critical psychological support at $500 in the process, which, in turn, could spark more selling.

Remember: These factors have nothing to do with Tesla as a business. In other words, long-term investors will want to ride the S&P 500 storm out. The stock should come back after this kerfuffle settles.

One way for TSLA investors to mitigate such losses is to sell out-of-the-money call options. Doing so will allow you to collect cash (called an option premium) even as Tesla falls. Just know that if TSLA moves above your sold call option, those shares could be called away from you. So be careful.

But if you’re the speculative type of trader, you’ll want to pay close attention to December 18. This is the last trading day for December options — aka expiration day. If you want to bet on a TSLA rally due to index-fund buying, December call options are your best bet.

Just be sure to set limit orders and be ready to exit quickly once you reach your target profit. Market timing is a dangerous game. With TSLA sure to be volatile on the same day your options expire, this is like playing chicken with a semitruck on a country road.

With that, I’ll leave you with one more Rush quote: I know it makes no difference to what you’re going through. But I see the tip of the iceberg, and I worry about you…

But I don’t worry about you Great Ones who choose to have a guiding hand through the options market. If you missed our guide last week on how to become an options-slinging pro … you’ll want to click here to dive headfirst into options land.

Great Stuff Good Better Best

Good: Chinese Hot Sauce

Nio reported record November deliveries today, rising 109.3% year over year.

Tired of electric vehicles (EVs) yet?

No? Good, ‘cause we have more on tap with Nio Inc. (NYSE: NIO).

The so-called Chinese Tesla reported record November deliveries today, rising 109.3% year over year. That’s 5,291 vehicles, to be precise — a 4.7% increase over Nio’s October deliveries. What’s more, November marked Nio’s fourth-straight month of record deliveries.

But the best is still to come.

According to Nio’s third-quarter report, the company targets 16,500 deliveries in the fourth quarter. In short, that means Nio plans to deliver 6,654 vehicles this month. Can Nio make it five record months in a row? Inquiring minds want to know.

Investing minds, however, continued to take profits today. NIO shares fell more than 7% on the news. “Buy the rumor, sell the news” has never been more true than with the EV market this year.

NIO is now down 18% from its November 24 all-time high. Barring any major turbulence related to TSLA’s addition to the S&P 500, this decline may be a buying opportunity for NIO bulls.

Better: Bang! Zoom!

Zoom’s quarterly report was a blowout of epic proportions.

Zoom Video Communications (Nasdaq: ZM), the pandemic poster child for at-home investing, hit the skids today. ZM plummeted some 14% as investors reacted to the company’s third-quarter report.

Now, with that kind of reaction, you might think that Zoom messed up big-time, missed earnings and revenue targets or even lowered guidance. You’d be wrong. Dead wrong.

Zoom’s quarterly report was a blowout of epic proportions. Revenue skyrocketed 367% to $777.2 million, eclipsing the consensus estimate for $694 million. Earnings came in at $0.99 per share, completely obliterating Wall Street’s target for $0.76 per share.

The company even raised fourth-quarter guidance to revenue of $806 million to $811 million and earnings of $0.77 to $0.79 per share. Both figures handily surpassed Wall Street’s bullish targets.

So, why did ZM fall like a stone? Profit-taking and vaccine hopes. The profit-taking is understandable. ZM is up a ridiculous 473% this year, so, of course, investors will take profits at some point.

But that profit-taking is exacerbated by fears that an end to the pandemic means an end to Zoom’s rapid growth. There are two reasons why these fears are wrong.

First, the pandemic won’t magically end just because a vaccine is approved. It will be months before things return to anything resembling “normal.” That means more time for Zoom to grow.

Second — and I cannot stress this enough — things won’t go back to “normal.”

Videoconferencing is here to stay, pandemic or not. This will become a part of the everyday business vernacular, and with Zoom’s popularity, the company will quickly become the new Xerox of the office space.

Will growth slow? A bit in certain places.

The at-home space will shrink slightly as some people return to the office. But the business market will continue to grow, especially on the contractor and freelance fronts. Furthermore, the work-at-home market will continue to grow as businesses cut overhead expenses.

The bottom line is that Zoom is a game changer, and today’s negative reaction to an extremely positive quarterly report is a buying opportunity.

Best: IVY League

BlackBerry announced a multiyear global agreement with Amazon Web Services to build out and roll out BlackBerry’s intelligent vehicle platform, known as IVY.

Come this, the final month of the year, I thought we’d seen it all.

Kubrick-like monoliths are appearing and disappearing in the desert, alleged lemur abductions and immortal worms invading Virginia

But never did I predict the return of ol’ BlackBerry (NYSE: BB).

OK, this is half true: If you’ve followed the tech bylines over the past half-decade or so, you’ll have seen BlackBerry move toward the security and internet of things side of tech has-beens. But, apparently, its pivot was potent enough in the space to get Amazon.com’s (Nasdaq: AMZN) attention.

Today, the ex-mobile-maker announced a multiyear global agreement with Amazon Web Services to build out and roll out BlackBerry’s intelligent vehicle platform, known as IVY.

The company said that its IVY platform “could use vehicle data to recognize driver behavior and hazardous driving conditions, or heavy traffic, and then recommend the driver enable relevant safety driving features.”

BB stock went on to have its second-best one-day gain since its IPO … back in 1999.

Now, don’t go chasing waterfalls or BB’s 45%-odd rally, but I have to say that this move does put the company back on the investing map once again.

Did any of you see this coming? One of you out there must’ve held on to the bugger since the mid-2000s blur … right? Put down your PalmPilot for a sec and let us know if you expected the BlackBerry-Amazon coalition.

Great Stuff Quote of the Week

In today’s Quote of the Week, we head to the crossroads where travel and housing stocks meet.

Oh, I know this one — we’re talking about the Airbnb IPO, am I right?

Not today — we have a case study on how to suck less than your peers, essentially.

The scene: We can all agree, travel ain’t pretty … unless you’ve been trading in and out of the cruise line volatility like the wave-riding captain you are. Otherwise, we’re headed to the hotel … motel … Holiday Inn.

The cast of characters: Marriott International (Nasdaq: MAR), with all its brand recognition and allure, is down about 46% on the revenue front compared to last year.

Choice Hotels International (NYSE: CHH) and Wyndham Hotels and Resorts (NYSE: WH) barely fared better than the supposed homestay savior itself — Airbnb, which saw a 32% revenue drop over the past nine months compared to last year.

You know who’s the head hotel honcho right now? Extended Stay America (Nasdaq: STAY), highlighted by The Wall Street Journal right here:

Across major lodging players, Extended Stay has been a relative pandemic outperformer, with revenue falling just over 16% year-on-year over the last nine months. The company said it has been profitable on the whole this year … and that occupancy — which was nearly 80% in the quarter ended Sept. 30 — has been running close to 2019 levels since August.

Relative outperformance … the best kind of outperformance?

So Extended Stay isn’t the end-all be-all pandemic investment like make Zoom or Shopify (NYSE: SHOP). And it’s far from the “sleeper hit” designation that I guarantee made the headline writer’s day. STAY still trades underwater for the year by about 6%, compared to every major index’s gain.

So what gives? Extended Stay sucks, but not as bad as the major hotels. Neat-o. I have barely appetizing leftovers to attend to, you know.

Well, see, what’s interesting here is what’s left unsaid that also underpins Extended Stay’s relative resilience: the housing boom.

Occasionally, you might need a halfway point between a former home and a new home, whether that’s due to construction time, closing delays or any of the countless roadblocks that always pop up when moving.

And Extended Stay offers a home base in the meantime: a bed, a place to do laundry and a comically proportioned kitchen to reheat Applebee’s leftovers in.

I’ve known several people who went the Extended Stay route in the past few years — even before the pandemic got everyone stir crazy. The Wall Street Journal all but pins the housing boom (and the pandemic issues plaguing new-home construction) as a boon for Extended Stay:

The company said that, while transient revenue fell 40% in September, revenue from longer stays was up. Extended-stay occupancy rose 18% versus the same time last year. … The average stay at an Extended Stay hotel is now between 30 and 40 days compared with around 25 days last year.

Throw in a fair amount of continued work travel — if not white-collar, then blue-collar — and there’s your Extended Stay setup. The company is still struggling like the rest of the hotel biz, but if you’re going to venture into the sector, it’s the one catch-all stopgap that could power through a fickle travel season.

What do you think? Are you a stock savant of the extended-stay space? Or are you avoiding everything travel-related like, well, the plague? Let us know at GreatStuffToday@BanyanHill.com. We are just two days away from this week’s edition of Reader Feedback, after all.

We’ll catch you tomorrow, but don’t forget to follow us on social media too: Facebook, Instagram and Twitter.

Until next time, stay Great!

Joseph Hargett

Editor, Great Stuff

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