3 Big Movers: Tesla Motors, Apple, and Groupon

Tesla Motors hits an all-time high, while Apple and Groupon lag the market

Feb 23, 2014 at 11:00AM

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

U.S. stocks were essentially unchanged during this abbreviated week, with the benchmark S&P 500 down just 0.1%. The narrower Dow Jones Industrial Average (DJINDICES:^DJI) lost 0.3%. High-profile auto manufacturer Tesla Motors (NASDAQ:TSLA) was a big outperformer on the week, while Apple (NASDAQ:AAPL) and Groupon (NASDAQ: GRPN) lagged the broad market.


Tesla Motors rose 5.7% this week, mainly on the back of its fourth-quarter results; however, it got an early boost on Tuesday after the San Francisco Chronicle reported last Sunday that Apple's head of mergers and acquisitions, Adrian Perica, met with CEO Elon Musk. That tidbit started an avalanche of speculation that Apple was thinking about acquiring Tesla, pushing the shares above $200 for the first time.

This is an instance of the market reacting first before thinking things through. As I wrote on Wednesday: "One thing I can say with a high degree of confidence, however, is that Apple won't be acquiring Tesla Motors. ... [Their respective] industries are simply too far removed from one another to justify a tie-up." But don't take my word for it -- here's how Elon Musk responded in an interview on Bloomberg Television when he was asked to comment on the possibility of an acquisition:

I think that [a sale] is very unlikely. ... [I]f there was a scenario where it seems like it would be more likely that we would be able to create the mass market, affordable, compelling electric car, then, possibly, it would make sense to entertain those discussions, but I don't currently see any scenario that would improve that probability, so that's why I think it's very unlikely.

You can read my review of Tesla Motors' fourth-quarter results; if you follow the company, note that it will be providing an update on the critical issue of battery cell supply next week.

And speaking of Apple, shares of the iPhone maker fell 3.4% this week, as longtime Apple bull Ben Reitzes of Barclays Capital downgraded them to "equal weight" from "overweight" -- a rating he had maintained for a decade! Worse, Reitzes subjected Apple to the ignominy of a comparison with un-hip Microsoft:

Both companies seem to have been rerated as investors ascribe little probability to a next "big thing" after a series of attempts to reclaim past glory. Apple now trades at 12.7x consensus 2014 estimates -- down from its P/E of 15.9x in October 2012. Microsoft traded around 20x in 2004 after a strong rebound in 2003, but its multiple has settled in the mid-teens since that time.

We don't see evidence that suggests Apple has another product as material as the iPhone or iPad in the pipeline. We are not arguing the nominal multiples here -- but the rate and sustainability of the new contracted multiple from peak is worth noting. Once the market decides that your main product will remain slow for a long time, there does seem to be a visible pattern for multiples to sustain lower levels for a long time even if revenues grow -- as was the case with Microsoft.

I'm bullish on Apple so my first reaction was to reject the comparison as absurd; however, a good investor is well served by giving contrary opinions proper consideration. On reflection, I think Reitzes raises a plausible scenario for Apple shares; however, I think there is at least one weakness in his comparison between Apple and Microsoft: Using price-to-earnings, which doesn't account for the cash on companies' balance sheet, masks just how cheap Apple's stock really is. Consider that Microsoft traded at an average enterprise value-to-EBITDA multiple of 17.5 in 2004; the equivalent figure for Apple in 2013 was 7.1. (Enterprise value is equal to market capitalization less net cash.) I remain bullish on Apple, but this isn't a stock that you can sock away for two decades without following the company.

From two good businesses, Tesla Motors and Apple, to, well, a business: Groupon. Investors sold down shares of the e-commerce site on Friday for a 22% decline (-24% on the week) after the company announced its fourth-quarter results. Yes, Groupon managed to beat the consensus estimates for revenue and (adjusted) earnings per share (although it fell short on EBITDA); the trouble was with the company's guidance for the current quarter, which was hurt by expenses linked to two acquisitions the company just closed.

Groupon's share price volatility make it an ideal trader's stock, but I would suggest investors give it a wide berth. It's a low-quality business that doesn't even qualify as a deep value pick, as far as I can tell. However, if you're looking for a bullish take on its latest earnings, Tim Brugger argues that Groupon analysts got it wrong, again.

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Alex Dumortier, CFA has no position in any stocks mentioned; you can follow him on Twitter @longrunreturns. The Motley Fool recommends Apple and Tesla Motors and owns shares of Apple, Microsoft, and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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