Elon Musk, the CEO and co-founder of Tesla (NASDAQ:TSLA), has been hailed as a genius entrepreneur, earning the nickname “modern-day Tony Stark,” after the fictional “genius inventor and billionaire industrialist.” According to the Bloomberg Billionaires Index, he has an estimated total net worth of $209 billion, surpassing Jeff Bezos of Amazon (NASDAQ:AMZN) as the world’s wealthiest person. Therefore, today’s article introduces seven stocks to buy that Elon Musk would approve of.
Many InvestorPlace readers will remember that in 1999 Musk founded X.com, which later became PayPal (NASDAQ:PYPL). He is also the founder of SpaceX, whose mission is to manufacture and launch rockets as well as spacecraft. In 2020, SpaceX had its first successful human space launch. Recent days have seen headlines on Starship, “a fully reusable transport system capable of carrying up to 100 people” to Mars.
There is no doubt Musk is a talented and successful entrepreneur. However, he can also be outspoken and at times controversial. For example, he has not been shy in using Twitter’s (NYSE:TWTR) platform to make public his positive views on Bitcoin (CCC:BTC-USD) and Dogecoin (CCC:DOGE-USD). Then, on Feb. 1, Tesla announced it was buying Bitcoin worth $1.5 billion. The company will also accept the cryptocurrency as payment.
Needless to say, Bitcoin has been reaching new highs since the announcement. “The Musk Effect” might be another example of the short-term nature of a hot stock market. But his followers are ready to take his lead and follow his words and moves.
For a large number of investors, Tesla represents the future of electric vehicles (EVs). But Wall Street also wonders if much of the future growth potential of the shares has already been accounted for in TSLA stock’s current price. Whichever way the stock goes, there are several other companies and assets that are likely to benefit from the attention Tesla and Mr. Musk give them.
With that in mind, here are seven stocks that are in the spotlight thanks to Elon Musk:
- AGC (OTCMKTS:ASGLY)
- Bitcoin (CCC:BTC-USD)
- Etsy (NASDAQ:ETSY)
- Modine Manufacturing (NYSE:MOD)
- PayPal (NASDAQ:PYPL)
- Sika (OTCMKTS:SXYAY)
- Tesla (NASDAQ:TSLA)
Stocks to Buy According to Elon Musk: AGC (ASGLY)
52-week range: $4.13 – $7.56
1-year price change: 9.38%
Dividend yield: 3.28%
Tokyo, Japan-based AGC is a glass manufacturer. Its products are used in a wide range of industries, from construction to automotive and solar energy. The company manufactures windshields for Tesla, offering investors an alternative way to invest in electric vehicles.
The company reported 2020 fiscal year results on Feb. 5. Net sales decreased 7% from the previous year. Similarly, net income also showed a 26% decline from a year ago. Analysts noted glass and chemicals segments showed decline in net sales and profit due to the impact of the pandemic. In the Automotive Glass segment, management underscored the “decline in group shipments, except for China, due to decrease in worldwide vehicle production affected by [the Covid-19] crisis.”
Despite the setback in 2020, management believes the business is “on a recovery track, expected to show [a year-over-year] YoY increase in net sales and [operating profit] OP.” I believe this niche manufacturer and supplier to Tesla needs to be on your watchlist.
52-week range: $4,106.98 – $50,335.72
1-year price change: 396%
The memorable Bitcoin rally in the past year was mainly driven by institutional demand as well as retail investors willing to bet against traditional paper currency. JP Morgan Chase (NYSE:JPM) suggested that Bitcoin can potentially “take the place of gold to a large extent,” ready for considerable upside, as it competes with gold as an alternative currency.
After Elon Musk changed his personal Twitter bio to #bitcoin, the BTC-USD price surged more than 15% to over $38,000 on Jan. 29, before falling back to $34,500. Meanwhile, his tweets have moved other cryptocurrencies as well.
However, there are rumors of declining institutional interest in the cryptocurrency. If this is true, a tweet from the richest person in the world cannot necessarily change this reality. Data from crypto news and analysis company The Block shows that hedge funds are shorting Bitcoin by more than $1 billion.
Meanwhile, Bitcoin fans continue to buy into the cryptocurrency, as this short-interest news has failed to curb the retail investor euphoria in Bitcoin. Although I believe there will be further institutional interest in the cryptocurrency, retail investors should be cautious. There is a lot of noise and speculation in the crypto space at this point.
Like the recent GameStop (NYSE:GME) stock headlines, it would not be surprising to see a clash in the coming months between hedge-fund short-sellers and bullish retail traders determined to push the Bitcoin price higher. Given the ongoing rally in the cryptocurrency, investors will continue to see wild swings in its price tag.
52-week range: $29.95 – $239.47
1-year price change: 340%
Etsy shares surged nearly 10% in premarket trading in late January after Elon Musk touted the company on Twitter, saying “I kinda love Etsy” in a tweet.
The New York-based company operates an online e-commerce site. It offers a range of seller services and tools that help entrepreneurs start, grow and manage their businesses. Etsy competes with brands like Amazon Handmade, Shopify (NYSE:SHOP) and Big Cartel.
Etsy reported Q3 results in late October. Total revenue was $451.5 million, up 128.1% YoY, driven by strong growth. Net income was $91.8 million, representing a 520% YoY increase from $14.8 million in the prior year quarter. Furthermore, diluted earnings per share came at 70 cents. Cash and equivalents were $1.6 billion. The company has around four million sellers on its platform, representing about a 50% YoY increase.
CEO Josh Silverman said, “We delivered very strong results during the third quarter, with consolidated GMS and revenue growth up 119% and 128% respectively, evidence of our focused execution, engagement with our buyers and sellers, and our strong brand, underpinned by the unique inventory in our marketplace.”
The online platform has a dynamic seller base. As a result, sellers were able to shift inventory to products that become relevant such as face masks during the current pandemic and “vote” necklaces during the U.S. presidential election. The company has been a winner in 2020, and the share price clearly reflects this momentum.
ETSY stock’s forward price-to-earnings (P/E) and price-to-sales (P/S) ratios are 105.26 and 22.08, respectively. This is a frothy valuation. Interested investors might find better value around $200.
Modine Manufacturing (MOD)
52-week range: $2.84 – $14.29
1-year price change: Up 66.3%
Racine, Wisconsin-based Modine Manufacturing provides engineered heat-transfer systems for use in vehicles, construction and refrigeration markets. Its products include radiators, condensers, charge air coolers, heat-transfer modules, ventilating and air conditioning (HVAC) equipment and coils.
Notably, the company manufactures battery chillers for Tesla, offering investors another way to invest in the EV space. It has a long history in the automotive business.
Modine Manufacturing reported third-quarter results on Feb. 5. Revenue was $484.3 million, relatively flat compared to the same quarter in the previous year. Net loss in the third quarter was $195.4 million, compared to net earnings of $1 million in the prior-year period. Moreover, adjusted earnings per share were 41 cents, compared to 37 cents in the prior year. Adjusted free cash flow was $141.5 million in the third quarter, compared to $25.9 million in the previous year.
In recent quarters, the firm has been expanding operations, specifically to commercial HVAC. This move has led to improving free cash flow since the management team announced its strategy transition several years ago.
CEO Neil D. Brinker cited, “After my first several weeks with Modine, I see great potential for us to leverage our technical leadership and innovation in thermal management to drive long-term growth and earnings improvements.”
Management is noting a slow and steady recovery from most of its end markets and regions. MOD stock’s forward P/E and P/S ratios are 7.51 and 0.40, respectively. I believe the stock offers good value around the current levels.
52-week range: $82.07 – $309.14
1-year price change: 146.04%
As we have already noted, Elon Musk initially set up X.com, which he intended to become an online financial services firm. In 2000, it merged with Confinity, co-founded by Peter Thiel and Max Levchin, two other internet entrepreneurs. The merged company became PayPal and was later acquired by eBay (NASDAQ:EBAY). Elon Musk left PayPal in 2002.
Over the past two decades, PayPal has grown to become one of the most important names in financial technology (fintech). Its combined payment solutions include PayPal, PayPal Credit, Braintree, Venmo, Xoom and Paydiant products. It also enables U.S.-based users to buy and sell Bitcoin on its PayPal platform.
Paypal reported fourth-quarter and full year 2020 results on Feb. 3. Q4 revenue totaled $6.12 billion, an increase of 23% YoY. Q4 non-GAAP net income was $1.3 billion, a 30% YoY growth. Non-GAAP earnings per share (EPS) was $1.08, up 29% from the prior year period. The group generated $1.35 billion in cash flow, a 46% YoY increase. Free cash flow was $1.12 billion, representing a 50% YoY increase.
CEO Dan Schulman said, “PayPal delivered record performance in 2020 as businesses of all sizes have digitized in the wake of the pandemic. In this historic year, we released more products than ever before and have dramatically scaled our acceptance worldwide, giving our 377 million consumer and merchant accounts even more reasons to use our platform.”
PYPL stock’s forward P/E and P/S ratios are 65.79 and 16.51, respectively. Given the impressive run-up in price over the past year, the valuation is on the frothy side. Yet, PayPal’s digital payment products are likely to stay in high demand.
The company’s market capitalization is over $354 billion. Although there is likely to be occasional pullbacks in the share price, I expect PYPL stock to create shareholder value for many quarters to come.
52-week range: $26.76 – $29.15
1-year price change: 50.1%
Dividend yield: 0.83%
Switzerland-based Sika manufactures specialty chemical-based products, primarily for the automotive, renewable energy and industrial markets. It produces additives for concrete, sealants for roofing and flooring, waterproofing systems and light-weight components for the automotive and wind-generation industries.
SIKA reported fourth-quarter results on Jan. 12. Sales stood at 7.88 billion CHF, while the company reported strong growth of 5.5% in the fourth quarter. Its products for environmentally compliant green buildings are becoming important.
CEO Paul Schuler said, “The 2020 fiscal year was overshadowed by the global coronavirus pandemic, which had a number of serious repercussions for the construction and automotive sectors … Sika managed to perform successfully in this highly challenging market environment and achieve above-average results.”
Management expects a strong 2021, mainly due to government stimulus packages for new-build and refurbishment projects. Sika is also forecasting higher vehicle-production volumes this year. Its products are used to soundproof and reduce the weight of cars. Tesla, Daimler (OTCMKTS:DMLRY) and Ford Motor (NYSE:F) are among Sika’s customers in the automotive industry.
SIKA stock’s forward P/E and P/S ratios are 36.9 and 4.96, respectively. Potential investors should eye declines in the share price for a better entry opportunity.
52-week range: $70.10 – $900.40
1-year price change: 401.7%
We can’t have a list of Elon Musk stocks without mentioning TSLA. Tesla has become the undisputed EV leader on Wall Street. The Palo Alto, California-based company is also involved in clean energy generation and storage products. Tesla currently has two vehicle production factories, located in Fremont, California and Shanghai, China. Additionally, construction of Berlin and Texas factories continue, and they are expected to start production in the coming quarters.
The automaker announced Q4 metrics on Jan. 27. Total revenue was $10.75 billion, up by 46% YoY. Net earnings were $903 million, showing 134% YoY growth. Furthermore, diluted EPS was 80 cents, a 95% YoY increase. Cash and equivalents, with the help of recent capital, were registered as $19.4 million, implying a 209% YoY increase. Free cash flow on the other hand, grew by 158% YoY and reached to $2,786 million.
“Over a multi-year horizon, we expect to achieve 50% average annual growth in vehicle deliveries. In some years we may grow faster, which we expect to be the case in 2021,” said Tesla management in a statement following its 2020 Q4 financials.
TSLA’s price performance was remarkable in the past 12 months as it has returned over 400%. As a result, the stock’s forward P/E and P/S ratios are 200 and 28.03, showing a rich valuation. Tesla is an extremely volatile stock. Short-term traders should be ready for price swings and exercise caution. However, long-term traders could regard dips in price as opportunities to buy.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.