You may not have realized it, but one of the most important data releases of the entire quarter occurred on Monday, Nov. 14. It was the official last filing day for Form 13F with the Securities and Exchange Commission (SEC).
A 13F is effectively a portfolio snapshot for money managers and wealthy individuals with at least $100 million in assets under management. It's required to be filed with the SEC no later than 45 days following the end of the most recent quarter.
Importantly, it gives Wall Street professionals and everyday investors an inside look at what the brightest investment minds have been buying, selling, and holding. Even though these portfolio snapshots are six weeks old, they still provide insight as to what trends are piquing the interest of successful money managers and billionaires.
Image source: Getty Images.
With the latest round of 13Fs now in the books, the most surprising revelation was that billionaire money managers -- five in total, which I'll discuss in a bit -- headed for the exit in droves with regard to the top-performing stock in the S&P 500 over the trailing decade. I'm talking about electric-vehicle (EV) manufacturer Tesla (TSLA 1.53%).
Although Tesla only entered the S&P 500 in late 2020, it's the best-performing stock within the index on a trailing-10-year basis, with a return of nearly 9,000%.
What made Tesla the best-performing S&P 500 stock over the past decade?
Tesla hasn't achieved a close to 9,000% return or reached a market cap that once topped $1 trillion by accident. It's achieved these marks because it disrupted a once-stodgy auto industry.
Few trends offer more promising growth or upside this decade than EVs. A recent report from Beyond Market Insights has forecast a compound annual growth rate for the global EV market of 22.5% between 2021 and 2030. On a nominal-dollar basis, we're talking about the worldwide EV market climbing from $178.5 billion in 2021 to $1.11 trillion by the turn of the decade.
Tesla became the first auto company in more than a half-century to successfully build itself from the ground up to the point of mass production. Following delivery of more than 343,800 EVs during the third quarter, the company is on track to surpass 1 million deliveries in a year for the first time in its history.
Tesla's success is also based on the rapid recent ramp up of its production. The Austin, Texas and Berlin, Germany gigafactories both came online earlier this year and give Tesla a very real shot at surpassing 50% year-over-year production growth in 2023.
Additionally, the company's lofty valuation is supported by its push to recurring profitability within the past two years. Although Tesla had previously pushed into the profit column on the back of renewable energy credits, it's now firmly profitable from selling EVs, based solely on generally accepted accounting principle (GAAP) profits.
And then there's CEO Elon Musk, who brings intangibles to the table that have made valuing Tesla difficult. Musk's innovation and oversight has led to the diversification of Tesla's operations into the energy business and robotics.
A Tesla Model 3. Image source: Tesla.
Billionaire money managers are running for the exit
Despite these tailwinds, 13F filings detailing third-quarter trading activity show that five billionaire money managers headed for the exit, to some degree. In no particular order:
- Jim Simons of Renaissance Technologies sold 2.24 million shares, representing a 99.9% reduction from the sequential second quarter (Q2).
- Jeff Yass of Susquehanna International dumped nearly 2.86 million shares, equating to a 55% reduction from Q2 2022.
- Philippe Laffont of Coatue Management oversaw the disposition of more than 681,000 shares, or 16% of the amount Coatue held at the end of June.
- Ken Griffin of Citadel Advisors dumped nearly 428,000 shares of Tesla, which reduced his fund's stake by 41%.
- Israel Englander of Millennium Management shed north of 307,000 shares, or 17% of what was held at the end of Q2 2022.
While the impetus to modestly or substantially reduce these stakes likely varies by billionaire money manager, there are some clear red flags with Tesla.
TSLA PE Ratio (Forward) data by YCharts.
To begin with, Tesla has been valued as if the company is impervious to the headwinds that traditionally affect the auto industry. Although its forward price-to-earnings ratio (P/E) isn't particularly outrageous when put side by side with other growth stocks, it's completely out of whack when compared to other auto stocks, which are typically valued at a single-digit forward P/E. That's because vehicles are a commoditized product and the auto industry will ebb and flow with the U.S. and global economy. With supply chain issues persisting and high inflation biting the pocketbooks of consumers, Tesla isn't immune.
Another reason billionaire money managers might be skeptical of Tesla is due to the poor performance of its ancillary operations. Despite moving beyond EVs and into solar-panel installation and energy storage products, the company's energy operations have continually lost money.
It can also be argued that we've been witnessing Tesla's competition gain ground. Ford Motor Company and General Motors have earmarked $50 billion and $35 billion, respectively, for EV research, production, and batteries. Meanwhile, newer players like China-based Nio have developed premium sedans (ET7 and ET5) that offer hundreds of miles of added range, with a battery pack upgrade, when compared to Tesla's flagship Model 3 sedan.
But perhaps the biggest issue for Tesla and the reason billionaires headed for the exit is Elon Musk. Not only does Musk appear distracted by his recent acquisition of social media site Twitter, but a laundry list of promises and innovations from Tesla's CEO have failed to materialize. It's no secret that Tesla's premium valuation is based on the idea that these new EVs, robots, and energy solutions will become big-time revenue and profit drivers.
If "following the money" is the smart thing to do, paring down or outright selling Tesla stock might be wise.
