Ahead of Index Inclusion, the Long-Term Bull Case for Tesla Stands

Capping off a blockbuster year, Tesla (NASDAQ:TSLA) is set to join the S&P 500 on Dec. 21. As a result, the momentum that sent Tesla stock skyrocketing has continued. When news of the index inclusion date broke, shares were up more than fivefold from their novel coronavirus lows. But, in the weeks since the announcement, shares have seen an additional 50%-plus move higher.

Tesla stock
Source: Sheila Fitzgerald / Shutterstock.com

Yet, this upcoming event has some investors concerned that the party is about to be over. Wall Street analysts who were previously bullish on the stock are now hedging their bets with hold ratings. However, while some are overly focused on this stock’s performance in the near-term, I’m keeping my eye on the long term.

While we could see some volatility in the coming months, ample runway is still in store for Tesla in the coming years. Besides its continued dominance of the electric vehicle (EV) market (despite emerging competition), there’s another key reason why the bull case for this company remains intact. That would be its potential to crush it in areas beyond just EVs.

Put both factors together and it’s clear that Tesla stock is still a solid long-term opportunity. Sure, shares may pull back after the big event on Dec. 21. But, as I’ve said before, volatility is your friend with this name. Consider any dip the prime time to buy.

Two Reasons To Be Bullish on Tesla Stock

As I discussed above, many see the upcoming inclusion of Tesla in the S&P 500 as a possible ceiling for this high-flying stock. And yes, to some extent, the investors who bid up shares in index-anticipation will likely take profit after seeing rapid gains in a matter of weeks.

On the other hand, volatility may go the other way, as index funds scramble to rebalance due to the changes. But, while this event is top of mind among investors in Tesla stock right now, it’s more important to stay focused on the long view.

That’s because two key factors could send shares even higher in the coming years.

Firstly, despite competition from upstart and incumbent automakers, this industry leader will continue dominating the EV space. That’s the case here in the United States and it’s especially the case in China.

So, as major economies start (or continue) to mandate more sales of zero-emissions vehicles, already-strong demand for EVs will continue to accelerate. In turn, that means solid growth in Tesla’s future. Sales are set to surge around 45% in the coming year, with high double-digit revenue growth for several years after that.

Secondly, you need to think of Tesla as being more than just an electric car company. This is a point I’ve made many times before. Whether we are talking about its potential in the realm of automated vehicle (AV) technology or the massive potential upside in its solar energy unit, Tesla is simply much more than a binary bet on the future of EVs.

What’s the Play as it Enters the S&P 500?

My focus on Tesla stock remains on the long-term bull case. But, I’m sure for some of you, the top concern right now is how to buy, sell or trade this name ahead of its inclusion in the index. In the coming days — before and after Dec. 21 — expect shares to be volatile.

All bets are off on whether shares will soar or sink after the inclusion. Some see it driving shares higher, as index funds (and large-cap mutual funds that track the index) re-allocate. On the other hand, TSLA skeptics have also come out of the woodwork, claiming shares will “plummet.”

What’s my take? I don’t see a dramatic move like some bears anticipate. Despite the aforementioned factors in motion, the company’s skeptics — proven wrong time and time again — still do not understand Tesla’s long-term potential. But, I can see how after the recent enthusiasm shares continue to slide lower.

If the stock does continue to lower, consider those moves as a great time to strike. The long-term bull case is still rock-solid, so any dip, pullback or sell-off represents a golden opportunity.

Index or Not, This Remains a Buy

After soaring more than 50% in a matter of weeks, investors have cooled off on the EV powerhouse’s shares. But, while the stock may stall or drop following the inclusion, the ship hasn’t sailed just yet.

As growth remains strong and the company’s chance to “level up” remains ample, significant runway is in the future for TSLA. That’s even after its epic 670% year-to-date (YTD) rally.

So, if Tesla stock moves lower, consider it an opportune time to enter a position.

On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.

Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now.


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