One good turn deserves another, they say. Tesla Inc (NASDAQ:TSLA) shares are on a roll again, climbing nearly 6% in Monday trading after investors returned the EV maker’s favor by bidding up TSLA stock.
The favor? Tesla extended a helping hand to Hurricane Irma victims by sending a free update to Model S and Model X drivers to unlock the full potential of the 75kW battery pack. The update, which lasts till Sept. 12, will increase the driving range by about 40 extra miles for people in the path of the deadly twister.
Just as well for Tesla shareholders, considering the anemic performance by TSLA stock over the past couple of months. The unveiling of the Model 3 in late July turned out to be a sell-on-the-news event as the shares gapped lower and struggled to find a proper floor.
TSLA Stock Good for Short-Term Buys
In all fairness, the Sept. 11 rally was to be somehow expected since a Buy signal had already appeared after a double-bottom formation on the previous Friday. That rally now means that TSLA stock lies in the the upper part of a wide and falling trend in the short-term. Under normal circumstances, this would be a good Sell signal.
But not so fast. Now that the price is above the $373.75 top trend line (current price is $377.64) might actually indicate a bullish trend reversal. A Buy signal is further buttressed by the fact that the short-term average remains above the long-term average and also by the fact that volume has been increasing along with the price. Despite being in a falling trend, TSLA stock currently holds Buy signals for short- term traders.
If you cannot stomach all the mixed signals and volatility in TSLA stock, take heart, there’s a way out.
Tesla’s Junk Bonds Are An Alternative
If you hold a very dim view of TSLA stock, you might want to give Tesla junk bonds a spin. Tesla is not a stranger to the secondary markets, having come calling for capital eight times over the past seven years whenever it needed to fund growth.
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This time around, Elon Musk’s charm offensive easily managed to raise $1.8 billion of 5.3% notes due 2025 in a debt-marketing extravaganza. I cannot remember the last time Tesla failed to hit its target in the debt market, and this time it was not be denied with the Model 3 fiesta still on the minds of investors.
Unfortunately, investors did not take kindly to Tesla’s meanness. I mean, who pays a measly 5% on junk-rated bonds for a company that says it will remain cash-hungry and unprofitable for years? The notes did not take long before starting to trade underwater, plunging as low as 96.4 cents to the dollar just a week after being issued. AllianceBernstein’s Gershon Distenfeld reckons Tesla could have priced the notes in the the 7%-8% range.
Luckily, the notes have since recovered and now are 0.71% in the green. Unfortunately, the party is not likely to improve a whole lot from here. Junk yields are currently hovering at multi-year lows, with the hot equities markets to blame. The S&P has racked up 11.35% in the year-to-date, which does not bode well for junk yields. Still, a 5.3% yield looks much better than the current 10-year treasury yield of 2.167%.
Betting Against TSLA Stock With Convertibles
For investors who think TSLA stock is overvalued and believe the shares will fall in the future, investing in the company’s convertible bonds might be a good way to go. Convertibles occupy a space somewhere between equity and debt. The price of convertible bonds is an interplay of stock and bond prices, volatility of the shares and a range of other complex inputs.
You can buy Tesla’s 1.25% convertibles due in March 2021 and short an equal amount of the automaker’s common stock. The yield on the convertible will help offset at least part of the cost of borrowing the shares. Unfortunately, the 1.25% convertible bond currently sports a -2.16% yield, meaning you will essentially be paying Tesla to look after your money. On the bright side of things, the notes have climbed 32.3% over the past 12 months.
The bonds have more limited downside than TSLA stock, though of course the flipside is that the upside potential is likewise limited. TSLA stock is up 82% over the past 12 months, easily besting its convertible bonds.
As of this writing, Brian Wu did not hold a position in any of the aforementioned securities.
