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TESLA to be included in the SP 500 Index.
The peak in bull markets is usually marked by events that go against the logic of sound investing. TESLA’ inclusion in the SP500 is probably one of those events that confirm that we are at the top of a secular bull market, like Yahoo’s inclusion in the same index marked the top of the Dotcom bubble in 2000.
Standard & Poor’s announced today that TESLA would be included in its main index next month, making it the largest market capitalisation company ever to join the Index.
This sent the stock surging 13 % at the open, as investors bet that indexed portfolio management will have to buy the shares to match the index weighting.
It is also the most expensive stock ever to join the SP500 with a P/E ratio of 113x, making the index that much more expensive.
What is striking is that TESLA that barely sells 500’000 vehicles per annum, sees no growth at all in its home market and seems to have slow sales in China is NOT making money from its core operations. Indeed, the company has now recorded its fifth quarter of net profits, matching the criteria needed to join the index, but these earnings all come form selling carbon credits to other auto makers, something that cannot be deemed to be recurring or even going considering the fact that ll auto manufacturers are swiftly moving to TESLA’s core business: Electric Vehicles.
With market capitalisation of USD 443 Billion, TESLA is valued five to ten times more than the world largets car manufacturers who sell 20 times more vehicles per annum on average.
With barely USD 2 Billion of profits in 2020, TESLA’s earnings yield is a paltry 0.5 % per annum, roughly the same yield as 2 year treasury bonds and less than 10 Year US treasury bonds.
If something is not wrong with TESLA’s bullish investors, than the world is upside down.
To us, not only this piece of news is not changing our short positioning in the stock, but it actually reinforces our view that te SP500 Index is very close to peaking before entering a lasting bear market.
The already overweight dominance of the ultra expensive technology stocks in the SP500 index has just been reinforced by the most bubbly stock of all, TESLA a stock that has increased in value by 796 % in 2020 alone.
If THIS is not the hallmark of a bubble, then nothing is !
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