It seems like an age since we heard anything about Tesla or other hype stocks that were so prevalent at the start of the year; investor sentiment evolving?
It’s not often that we go more than a week without getting some sort of story from Tesla (NASDAQ: TSLA) or its enigmatic CEO Elon Musk. To be fair, his other venture, SpaceX, did just make history by becoming the first private space company to send astronauts into space from the U.S. This incredible feat seemed to boost Elon Musk’s profile, thus having a knock-on effect on Tesla stock, which jumped more than 7% on Monday following the launch.
This aside though, it seemed that Musk had ‘rage quit’ planet Earth once more and vanished.
Off Twitter for a while— Elon Musk (@elonmusk) June 2, 2020
I personally thought that he’d been beamed up to the mothership to report on Earth’s current vulnerability, but he returned with a bang Thursday night calling for a breakup of Amazon (NASDAQ: AMZN), before apparently deleting his tweet and slinking back into the night.
Whether he decides to stick around or not, I’m more concerned about the disappearance of news regarding ‘hype’ companies, a category of which many will argue Tesla belongs.
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What’s a ‘hype stock’?
My colleague Michael would actually argue that this should be called a ‘meme’ stock, and in his own words:
“Some common characteristics of meme stocks are that they’re usually overpriced, experience spikes of rapid growth in short spaces of time, popular amongst millennials, prone to high volatility with valuations based around potential rather than financials, the sentiment around the stocks are usually positioned around the future problem it solves, play on FOMO as a motivator to buy, and panic-selling at the slightest headwind is common.”
If you want to learn more about this, he has written a wonderful article which I shamelessly stole the above quote from:
What about other hype stocks?
It’s not just Tesla that’s been quiet of late; we’ve heard barely a peep out of the world’s only private space company which trades on the stock market, Virgin Galactic (NYSE: SPCE). The company saw its stock fall this week after owner Richard Branson began selling shares in the company in a bid to shore up losses in his airline, Virgin Atlantic, of which Delta Airlines (NYSE: DAL) is a partial owner. Yet, we heard little to nothing about this. Back in January, it would have been ‘front-page’ news.
Likewise, Beyond Meat (NASDAQ: BYND) launched its products in the all-important Chinese market on Wednesday and little has been said. One of the newest members of the gang, Draftkings (NASDAQ: DKNG), went public last month, bringing legal sports betting to the stock market. There have been many bullish calls on a company that is legalizing sports betting, despite the fact that there is little sport to bet on right now, but the overall market sentiment seems to be less ‘hype’, and more ‘meh’.
Finally, the once-mighty (or at least touted to be) cannabis industry has not set the world alight after garnering so much support. The likes of Tilray (NASDAQ: TLRY) and Canopy Growth (TSE: WEED) are way down this year so far.
So, have investors turned away from hype stocks?
Back in January and February when these stocks were at their peak in the eye of the public, things were going great. The market was in its longest bull-run ever and there was no pandemic in the West yet. However, the coronavirus changed all that almost overnight, and the new stars of the show were the at-home stocks, the Zoom’s (NASDAQ: ZM), Slack’s (NYSE: WORK), Peloton’s (NASDAQ: PTON), and Netflix’s (NASDAQ: NFLX).
Many young investors were also forced into the reality of a bear market, something which many of them may never have experienced. And, while it’s easy to make money in a bull market, some investors may need a little help when it comes to a pandemic-driven downturn. That’s why the use of products such as MyWallSt and other investing apps has soared, and also why investors are now looking for a bit more stability wherever they can find it.
But what about Tesla?
I have another theory about Tesla — I don’t believe it is a ‘hype’ stock at all anymore. I believe that it is fast-becoming a “go-to stock”, much like Apple (NASDAQ: AAPL) or Microsoft (NASDAQ: MSFT). These are the stocks that investors consider ‘safe’ or ‘solid’, and may not show explosive growth, but will return gradual yields over time. Despite the Elon Musk-led company being bombarded by short sellers on an almost daily basis, there are signs that the leading electric vehicle maker is becoming recognized as one of the most reliable stocks in the market.
On top of soaring 400% in the past year, the company has shown strong gradual growth since it went public, growing 260% in 5 years. Even with the closure of manufacturing plants worldwide and the rise of competition such as China’s NIO (NYSE: NIO), it remains on the rise. What’s more, it remains the only U.S.-listed company with a $100 billion market cap that is still up over 100% year-to-date.
With the electric vehicle market set to reach a value of over $800 billion by 2027, and Tesla at the helm, I must admit I am starting to become a bit of a fan of a stock I once had no time for.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.