Elon Musk made headlines again for the wrong reason. This time, the SEC has asked a Federal judge to hold Musk in contempt of court over tweets about the car company’s projected production volumes.
You may remember that the SEC came down hard on Tesla and Musk in October when he tweeted that he was considering taking the company private, punctuated with the phrase, “funding secured.” For that he agreed to pay a $20 million fine and step down as Tesla Chairman of the Board. Part of the settlement with the SEC was that someone at the company would review and approve any statement Musk made that could influence the company’s stock price.
On Feb. 19, Elon Musk tweeted — then revised — projections for full-year Tesla manufacturing numbers.
In its court filing, the SEC said, “Musk did not seek or receive pre-approval prior to publishing this tweet, which was inaccurate and disseminated to over 24 million people.” Never mind that the company’s general counsel, Dane Butswinkas, left his position the next day.
In January I wrote that Tesla was worth a second look after it broke ground for a factory in China. In addition, the company had resisted the general market volatility at the end of the year, European expansion was just around the corner and Q4 earnings showed that company delivered a record number of vehicles.
But Musk continues to act as a loose cannon and the company’s senior leadership continues to exit. Until the company produces as many cars as it forecasts, and Musk is under control, it’s difficult for anyone to recommend the stock.
However, if you’re looking to invest in a cutting-edge car company with a vastly bigger market size and without Elon Musk, you might consider the “Tesla of China.”
Nio stock surged 11 percent yesterday after a positive story on the company aired on 60 Minutes Sunday night. The story covered the company’s CEO, William Li, and profiled its efforts to bring electric cars to the growing Chinese upper-middle class.
In addition, the company is developing a social community for its owners and has built several private social clubhouses where Nio owners can socialize in person.
Nio is part of the electric and autonomous vehicle revolution taking place right now. It is one of the companies testing AVs in California and also is testing on China’s streets as well. And, the news about AVs is becoming more mainstream as the technology advances and people come to grips with the potential uses.
Stories appear almost every day about the potential markets for AVs. It’s easy to imagine self-driving cars helping elderly folks who can’t drive become much more mobile or commuters being able to read a book or watch a movie on the way to work, and even ordering rides from fleets of “robo taxis.”
We’ve been featuring articles about the AV revolution in the Digest from Matt McCall, editor of Investment Opportunities. Regular Digest readers recognize Matt as our expert analyst who tracks the trends that are reshaping our world — and creating massive investment opportunities in the process.
Now, to be clear, Matt has not recommended Nio, but he has recommended other stocks to cash in on autonomous vehicle revolution. Investors still have a chance to get in early and make significant gains.
But this story is really about China.
We’re all following the trade negotiations between the U.S. and China. Negotiations seemed to have progressed well enough that President Trump has touted a “signing ceremony” in Florida later this year.
The easing of trade tensions has given a boost to both US and Chinese markets and has punctuated another one of our favorite investing opportunities.
Last year, Matt wrote an essay on The Delay that Can Make You a Millionaire. In his essay, Matt urged investors to buy stock in the innovative companies dominating China’s social media, video gaming, media, and internet sectors… much in the same way America’s top tech companies dominate their markets.
The companies that dominate social media, video games, media, and the internet in the United States are some of the biggest stock market winners of the past 20 years, and China’s market provides the best opportunity for huge gains on proven concepts. Here is the part of the essay that jumped to my mind.
Since the U.S. economy is much more mature than China’s, innovative new business ideas tend to spring up, attract investment capital, and get applied in the U.S. before they do in China. But since the Chinese government uses laws and regulations to restrict (and sometimes ban) non-Chinese companies from doing business in the country, many top American companies are shut out of the giant market. Facebook is a perfect example. It is not allowed in China.
The population of China is 1.38 billion, which is more than four times bigger than the U.S. at about 330 million. This means that many business sectors in China are even bigger than the massive U.S. market.
And when a Chinese company applies a successful innovative business model like Amazon’s or Google’s, the results can be extraordinary. The massive stock gains come on a “lag” after the gains are generated in America.
Berkshire Hathaway’s Charlie Munger also has recommended this approach to investors. He has been quoted in several publications as saying, “The best companies in China are cheaper than the best companies in the United States,” and “I don’t think it would be all that hard for any smart person to find four or five great companies in China to invest in.”
Jeff and I have been writing that after Chinese stocks got killed last year, the worse seems to be over. Ten days ago, I wrote about one of Matt’s favorites, iQiyi, the “Netflix of China.” At the time, the stock had shot above its 50-day moving average, but not it’s 200-day day average. Ten days later, and it’s still on a winning streak.
iQiyi is not Matt’s only recommended China stock, but it’s a great illustration of the strategy of buying a Chinese version of one of America’s favorite stocks (Netflix) at a deep discount.
As I wrote before, Chinese stocks are presenting a favorable risk/reward entry point for a long position. The stocks have weathered the bad news and are starting to outperform their US counterparts.
If you’re still concerned about risk, you can establish tight stop losses, but the potential downside for some of these stocks is low. Investors looking for big gains need to take advantage when, after getting crushed, stock prices begin to break out.
As trade tensions ease between the world’s two largest economies, significant tailwinds can develop for companies in the right position to take advantage of emerging trends.
To a richer life…
Luis Hernandez, Managing Editor
and the research team at InvestorPlace.com
