If you believe the future of the automobile is electric, I don’t think there’s any question you’re wiser to buy Tesla (NASDAQ:TSLA) rather than Exxon Mobil (NYSE:XOM) stock. However, if you still believe in the power of fossil fuel, you’re better off dumping Tesla stock for Exxon.
I’m a big fan of Elon Musk and the Model 3, so I’d go for Tesla stock over XOM stock every day of the week and twice on Sunday.
That said, Tesla doesn’t make money — it’s expected to be cash flow positive by the end of the year — and although Tesla’s CEO has said it will also post a profitable quarter in 2018, conservative investors are best to pass on TSLA stock given its volatility.
Who Should Buy Tesla Stock?
As I said in the beginning, if you believe in the future of electric and don’t mind above-average risk, there’s no question you ought to consider Tesla stock because someday Musk’s name could be in the dictionary as a synonym for innovation.
Tesla’s Model 3 is now so popular it was the fifth-highest selling car in the U.S. by units in August; it owns 50% market share in electric vehicles and is the top-selling car in the country because of its average selling price of almost $56,000.
ARK Investment Management CEO Cathie Wood first predicted Tesla stock could hit $4,000 in a best-case scenario back in February.
“If we’re right, this stock in our models is going to $4,000,” Wood said on CNBC’s Squawk Box Feb. 7. “If we’re wrong, and all they do is electric, our bear case is $600.”
She’s convinced that several of the secular trends the world is facing including going electric are all areas that Tesla is chasing leaving investors with a long runway of growth.
Like me, she’s a fan of Musk and believes that it should remain a public company. Others do not.
In August, Wood wrote a public letter to Musk explaining why it should remain a public company. Her rationale is that the same genius that powers SpaceX also powers Tesla, putting it in a league of its own.
Earlier in August, before Wood’s letter came out, I suggested that $420 wasn’t enough to take Tesla private; Wood would take issue with that price.
More importantly, I thought Tesla should remain public because of all the free PR it gets. As a private company, I doubt it would get nearly as much press.
Anyone who can afford to lose the investment and believes in an electric future should own Tesla stock.
Who Should Buy Exxon Stock?
There are only two types of people that ought to own Exxon stock: Exxon employees and dividend investors.
The first group is evident given Exxon’s employee benefits likely includes a matching 401(k) contribution of some kind with XOM as one of the options.
According to its latest 11-K, Exxon’s savings plan invests $10.1 billion in company stock out of total assets of $20.6 billion with the rest of the assets invested in equity and bond funds. Clearly, this plan intended to foster employee ownership.
It’s too high a weighting for my liking, but that’s a subject for another day.
The second type of person that should own Exxon stock is the dividend investor. At 3.9%, Exxon’s dividend yield is desirable compared to the 1.8% yield of the S&P 500.
Of course, the index has doubled XOM’s annual total return over the past three years, suggesting that if you want capital appreciation with your income, you might have to look elsewhere.
However, if you like dividend aristocrats — Exxon’s upped its annual dividend for 35 years straight — Exxon Mobil might be for you.
The Final Verdict
Almost two years ago, I called Exxon stock dead money. Fast forward to today and it’s trading around the same price after 22 months. I don’t know about you, but I’d call that dead money.
In my opinion, only the meekest of investors would pick Exxon stock over Tesla stock.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
