You’re probably thinking, “Who is Catherine Wood?” and “Why does she have to buy Tesla (NASDAQ:TSLA) stock?” Catherine Wood is the chief investment officer of Ark Invest, a company that invests exclusively in disruptive technologies like electric vehicles. One of the company’s ETFs is the Ark Innovation ETF (NYSEARCA:ARKK), an actively managed portfolio of stocks with $1.07 billion in assets. It was named the “ETF of the Year” in 2017 by ETF.com. Tesla stock is Ark Innovation’s top holding with an 8.33% weighting as of September 4.
Still not sure what Catherine Wood has to do with Tesla?
Well, on August 22 Wood sent Elon Musk a letter begging the Ambien-using CEO NOT to take Tesla private.
“According to ARK Invest’s research, Tesla stock should be valued somewhere between $700 and $4,000 per share in five years,” Wood stated in her open letter to Musk. “Taking Tesla private today at $420 per share would undervalue it greatly, depriving many investors of the opportunity to participate in its success. In our view, given the right investment time horizon, TSLA is a deep value stock today.”
When Wood wrote the Jerry Maguire-like letter,Tesla stock was around $322. In early afternoon trading, it’s around $283.
Wood Has to Buy Tesla Stock
Logic suggests that if Wood and the rest of the number crunchers at Ark Invest believed TSLA stock was worth anywhere between $700 and $4,000 when they wrote the message, it is still worth that much today, since it’s still the ETF’s largest holding.
So, if that’s the case, and you’re long Tesla stock, you better hope Wood is buying the shares right now, or the party is over and everyone can go home.
As they say about insider buying and selling of companies’ stocks: there are many reasons why they sell (vacation, college fund, yacht), but there’s only one reason why they buy.
It’s Time to Put Up or You Know What
I’ve been a fan of Musk’s for a long time. While he’s got an over-the-top personality, there’s no question that he’s a brilliant visionary. He is one of the best that this country, which also produced Thomas Edison and Steve Jobs, has ever seen.
My previous article about Tesla was published before Wood’s letter and stated that Musk would have to do better than $420 if he genuinely wanted to take Tesla private. Longs would demand a higher price, I wrote in the mid-August column.
Now that Tesla stock has dropped almost $100 since I suggested the CEO would have to pony up more cash, some of the longs are probably cursing themselves for hanging tough.
The shorts likely smell blood. I know some of my InvestorPlace colleagues do.
“Not only is the stock around 25% below yearly highs, but uncertainties over its ability to raise funds are growing,” wrote Chris Lay on September 5. “Had Tesla gone private, it would have enjoyed the freedom to set its milestones independently from the quarterly earnings calendar. Sale of debt instead of stock would have given the company whatever funds it required for covering capital expenditures.”
Musk may have to issue stock in the final quarter of the year. The shorts would welcome that development, as it would suggest that the company continues to bleed cash faster than it can make Model 3s.
Industry estimates indicate that Tesla will meet the low end of its third-quarter Model 3 production guidance. As a result, September, ahead of the quarterly numbers, is the perfect time for Wood to publicly put her money where her mouth is by declaring that she has bought more Tesla stock at prices below $300.
The Alternative
Wood’s letter, like Jerry Maguire’s, is a must-read. It makes all the right arguments about why Tesla should remain a public company.
If TSLA goes private at this point, the implication would be that public markets are nothing more than an exit vehicle to make insiders wealthy and con average investors out of their hard-earned savings.
Wood has to come clean about her Tesla stock transactions. If she doesn’t, and it’s proven down the road that she sold some TSLA stock as its prices fell, the shorts will have a field day.
It’s time for Catherine Wood to step up to the plate. The alternative would not be good for Tesla shareholders.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
