Tesla (NASDAQ:TSLA) stock investors have been shy about bidding it up lately. TSLA has lagged the S&P 500 on most time frames under one year. But that is not their typical relationship — when markets are rallying, TSLA outperforms the benchmark by a mile. This could be about to happen again if the assumption is that we are close to ending this correction.
TSLA stock traders and investors alike should be used to having extrinsic drama when trading it. The most recent bout of volatility is stemming from CEO Elon Musk’s efforts to buy Twitter (NYSE:TWTR). Tesla investors are nervous about endangering the car company’s assets to get the financing necessary for the Twitter buyout.
This is an unrealistic fear. Nevertheless, we must respect the effect it is having on the stock price. Meanwhile, there is also more external risk from the overall economy. The U.S. Federal Reserve’s efforts to control inflation are scaring investors away. This is resulting in flash stock sales like the one from yesterday afternoon.
TSLA Stock Should Outperform
Markets fell apart in minutes yesterday to close -2.5%, but Tesla only fell -0.9%. This is only one day, but I bet there are more days like this coming.
Today my thesis is that TSLA stock is about to go an long run that outdoes the indices. So investors might want to allocate some money to it. For this to happen, we need the markets to find footing and recover some upside momentum. Otherwise, all stocks will continue correcting.
It is not certain that the correction is over, because the Wall Street sentiment is sour. Investors are uneasy about risking funds in the face of a harsh rate hike cycle. Many see a recession coming. Famous financial pundits like Jamie Dimon are doing their best to scare us. Hopefully the Fed heads are listening too. True or not, these warnings may become self-fulfilling prophecies. Therefore we must respect the notion.
Next week the Fed will probably hike rates another half point, and more after that. But they might tone down the hawkish rhetoric now that consensus is that the economy is dying. If they do, I would anticipate a relief rally thereafter. TSLA stock should do much better then. And if yesterday was any indication, it can outperform while we wait.
Trust In Its Long-Term Story
There was a time when Tesla’s fundamental were in question. This is no longer true. It is the leader in a booming industry that has a massive addressable market. There are temporary hiccups from global shortages and lockdowns in China, but that is an industry-wide phenomena.
The company is firing on all cylinders so investors are right to trust in it. This is especially true for those with a long horizon. Although it is not dirt cheap, there aren’t any flagrant fouls. The price-to-sales is reasonable considering the speed with which it grows. Tesla’s revenues quintupled in under five years.
What’s also impressive is that last year it generated over $11 billion in cash from operations last year. Rising rates crimp borrowing, so it’s important to create your own cash to grow.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.