The "Magnificent Seven" stocks have dominated market headlines for the past year or so. These big tech stalwarts, often worth over a trillion dollars each, have collectively obliterated the broader market.
However, "Magnificent Seven" member Tesla (TSLA 15.31%) is one notable exception. The stock has been virtually flat over the past 12 months and down over 50% from its high.
It can feel counterintuitive to chase a cold stock, but Tesla's dip might be the best buying opportunity of all the "Magnificent Seven" stocks today. Here is why investors should consider buying Tesla and never letting go.
First... examining the EV slump
There's a broad sense that electric vehicles are in a tremendous slump right now. Legacy automotive companies like Ford and General Motors have pumped the brakes on EV ramp-ups, and newer EV companies like Rivian and Lucid are issuing soft guidance for 2024. But is this affecting everyone, including Tesla?
Tesla's 2023 unit deliveries represented a 38% increase over 2022, an impressive jump considering Tesla's up to 1.8 million units in a year. Its competitors are having difficulty growing a base number in the tens of thousands or less. So, perhaps it's fair to say that Tesla's not struggling like others.
Additionally, research indicates that Tesla is gaining ground on total market share in the United States. According to Cox Automotive and its subsidiary Kelley Blue Book, Tesla's share increased from 3.8% to 4.2% across all automotive brands in 2023.
Tesla did warn that unit growth might take a step back in 2024 as the company prepares a potential new vehicle, along with new manufacturing systems. CEO Elon Musk has also commented on the effect of higher interest rates on consumer demand. Of course, investors will want to see how this evolves, but it's hard to say today that Tesla's EV brand is fading.
The future looks high-tech
Long-term EV leadership is arguably enough of a reason to own Tesla stock. Still, the company's nascent, long-term catalysts could elevate investment returns over the coming decade. The long-term value of Tesla stock could come down to three crucial projects: Full self-driving software, the Cybertruck, and Tesla's humanoid robot, Optimus.
Full self-driving (FSD) has been in development for over a decade, and the long time frame might have given the impression it's never coming. That technically could be true, but the advancements made in recent years have also led to immense progress, including the most recent version of FSD, beta version 12. Perfecting FSD would arguably change Tesla's entire trajectory.
The Cybertruck recently began its first deliveries and exposed Tesla to a brand new customer demographic as its first passenger pickup truck. There are an estimated 2 million reservations today. While not all will translate to orders, it illustrates people's interest in Tesla's unique truck design.
Image source: Tesla.
Lastly, Tesla is developing a humanoid robot to handle simple manual labor. Commercial release isn't imminent, but Tesla did recently showcase a video of a prototype strolling through a lab, a clue to the bot's already impressive functionality. Amazon founder Jeff Bezos and Nvidia are funding a competing start-up, seemingly validating the potential market for humanoid robotics.
Owning Tesla requires a leap of faith
Today, the stock's forward price-to-earnings ratio is 61, and analysts believe earnings will grow by an average of 22% annually over the next three to five years. Tesla isn't a bargain at this price, but the 50% haircut at least makes the stock's price tag digestible. Tesla is known for bold ambitions and hasn't yet delivered on all its promises over the years.
At the same time, the stock has crushed the market because when Tesla does deliver, it does it big. That volatile nature doesn't seem likely to change as long as Elon Musk leads the company. Long-term investors must accept that to buy and hold the stock comfortably, but there's no question that there are enough irons in the fire to make more magic over the coming years.
