Tesla's Reckoning, and My Price Target

One thing I’ve learned over the years is that once a particular group of investments becomes an acronym, it’s doomed.

It may take a few years for the reckoning to come. But it always does. And investors who aren’t willing to adapt get left holding the bag.

In 2007, the hot acronym of the day was the “BRICs” – Brazil, Russia, India and China. Emerging markets like Brazil, Russia, India and China were producing market-beating returns.

I was working as a financial adviser for a Fortune 500 planning firm at the time. Our regional vice president told us to mention “the BRICs” as often as possible in our client meetings. “You have to show our clients we know who the winners are,” he harped on.

The problem was … the sun was setting on the best days for the BRICs. And sure enough, after falling considerably in the Great Financial Crisis, the “BRIC” acronym quickly faded away — along with investor interest.

In the next bull market, a new hot group of stocks came along with their own acronym: the FAANGs — Facebook, Apple, Amazon, Netflix and Google.

The FAANGs and other “Big Tech” names dominated the last bull market. But the best days of that dominance are evidently behind us…

So recently, I locked onto a major tech name as a short opportunity, and recommended it to my readers.

But it wasn’t actually any of the FAANGs. To make the kind of returns I was targeting, I had to go for the most volatile Big Tech name out there…

Tesla.

My Big Tesla “Short”

Regular readers know that I believe market narratives and market prices rarely go hand in hand.

And last year, it became clear that the narrative surrounding TSLA was totally disconnected from its price.

It took guts to buck Tesla’s narrative months before Mr. Musk’s antics hastened the downturn and the market price caught up. But it has, and we now have a massive payout in hand.

Here’s how I decided to pull the trigger…

Tesla crashed over 26% from late September to late October 2022. Many investors thought the worst was over.

But having studied sector shakeouts before … I knew otherwise. And better yet, I had the strategy in place to profit from the downfall.

I got my Max Profit Alert subscribers into our “short-Tesla” trade in early November. I have to put quotes around “short” because we aren’t short-selling the actual shares. We’re using put options — which rise in value as stocks fall.

So far, we’ve locked in a 69% profit on one-third of one of the short-TSLA positions I recommended. But I expect far bigger profits to come from these trades in 2023.

We’re five days into the new year … and Tesla stock is already down 12%.

Meanwhile, one of the short-TSLA trades we’re holding shows an open gain of 161%… And the other is up 221%!

We have until June to capture a large decline in TSLA shares … and that’s exactly what I intend to do.

My downside target for the stock is its March 2020 close: $28.50. That’s where TSLA traded before all the madness of the past three years began.

If that sounds overly pessimistic, wait until you see how far the market’s favorite tech stocks — the FAANGs — have fallen from their highs.

The Toothless FAANGs

If you’ve read my past essays for The Banyan Edge, you’ll know that I use my Stock Power Ratings system to find stocks worth buying. (And hopefully you’ve checked the ratings for a few of your own stocks over on the Money & Markets website!)

But you should know I also use it to find stocks you should avoid at all costs.

I’m talking about low-rated, bearish stocks that are destined for the bargain bin. Value-trap businesses that were only propped up by easy money in the last bull market.

And that’s the case for every single one of the FAANG names.

All of these stocks lost at least $750 billion in market cap from their highs. And their Stock Power Ratings reflect these losses.

For instance, Microsoft rates a poor 30 out of 100 on my Stock Power Ratings system. It’s down $784 billion off its all-time highs.

How about Meta? Well, Facebook can change its ticker and toss out all the buzzwords it wants … but the company is still a 32 out of 100 on my scale even after losing $777 billion in market cap.

Alphabet, a 36 out of 100, is down a whole $846 billion from its highs. And Apple, a 37 out of 100 … down $880 billion.

Then you have Amazon, which shaved off a record $1 trillion in market cap. It’s not surprising that the stock rates a pitiful 17 out of 100 in my Stock Power Ratings system — the lowest of the Big Tech bunch.

For comparison … Tesla is “only” down $762 billion from its peak. (It rates a bearish 26 out of 100 for good measure, too.)

Now, I don’t share all of this to poke fun at anyone investing in tech stocks. We all know how difficult it is to withstand these losses as an investor.

But the thing is, you don’t needtojustput up with the incessant sell-off…

You can adapt, and start making money right now.

The Silicon Shakeout Is Here

I’ve long touted the advantages of what I call “adaptive investing” … and you can see it in the Tesla put trade.

We had to adapt to the tide turning in Tesla. By using leverage with options, we capitalized on Tesla’s decline. In fact, since our options expire months in the future … time is on our side.

We’re not gambling on Tesla stock falling tomorrow. Instead, we’re profiting slowly but surely as the tech shakeout continues in 2023.

Buy-and-hold strategies will never offer that level of freedom. By holding shares, you’re locked into one side of the trade … and that’s the last place you want to be when the entire tech sector is selling off.

You should never fight the trend. And right now, the trend is dead-set againstBig Tech. It’ll only get worse in 2023.

Don’t believe me?

Well, I’m not the only one predicting the fall of Big Tech stocks, or the only one profitingoff them the whole way down using options.

Mike Carr has spent the last several months developing a new trading system, designed to identify sell-offs in the worst stocks in the market — often weeks or even days before they happen.

By using options, Mike finds what he calls “Shakeout Trades.” Like our Tesla short, these trades let you adapt to the market and profit as stocks fall.

And as for Tesla, here’s what Mike had to say:

…Tesla’s ride is over.

Over the next 12 to 24 months, we can expect Tesla to drop from its high of $407 per share … to just $11. That’s a 97% drop.

Are you surprised? I’m not.

Mike went on to tell me this is the worst Silicon Valley reckoning since the dot-com bubble burst 20 years ago. But there’s one big difference…

The 2,000 companies that went public in that bubble were not facing historic inflation or the fastest interest rate rises ever. Nor were they dealing with the worst supply chain issues in 50 years.

This should all sound quite familiar. Just a few weeks ago, I told you about the major shifts that hit the market roughly every 10 years.

Bear markets — like we’re in now — have historically been the catalyst of major shifts in market leadership. That’s to say … while tech stocks reigned in the late ‘90s … and the late 2010s … the pendulum soon swung against them.

That’s exactly why the Silicon Valley shakeout will continue … and get worse.

But remember: We’re adaptive investors. Instead of sitting on the sidelines as tech stocks get pummeled, we can use a proven system to play the other side of the trade.

Mike Carr’s newest trading strategy has proven to deliver both in times like now, and even good times.

For example, Mike ran his system against Nasdaq 100 stocks from the pandemic low to the 2021 top. It made 287 short trade signals and 61% of those trades were winners … generating total returns of 143% — even better than the bubbly return of the Nasdaq 100 itself.

That’s 143% returns … shorting Nasdaq 100 stocks … during the biggest tech bubble in over two decades.

In summary: You owe it to yourself to learn what Mike’s next move is in this Silicon Shakeout.

If you haven’t already, put your name down here to make sure you join him for his urgent briefing next Thursday at 4 p.m. ET.

Until next time!

To good profits,

Adam O’DellChief Investment Strategist, Money & Markets

P.S. Before you go, a simple but important question…

Are you bullish or bearish on Tesla (TSLA)?

You know where I stand… But we’re doing a quick-take analysis on Tesla in the Monday Banyan Edge Podcast, and we want to know what you think, too.

Click here to submit your answer in a 10-second poll … and see what your fellow readers think.

Market Edge: The Most Important Risk Management Decision You’ll Ever Make

By Charles Sizemore, Chief Editor, The Banyan Edge

The start of a new year is always a good time to reflect on what you did right … and wrong … in prior years.

It’s been a decade and a half, but I still think about my biggest personal blunder from back in ‘08: Thornburg Mortgage.

It was the perfect stock. At a time when the financial world was suffering the consequences of subprime mortgage loans, Thornburg only invested in superprime mortgage loans. That is, better-than-prime mortgages held by ultra-high-net-worth people.

These weren’t the sort of people who defaulted on mortgages. What could go wrong!

Apparently, a lot.

As the stock price dropped, I continued averaging down. It was madness … the market just didn’t understand the company and was unfairly punishing it.

I was smarter than they were, and I would show them!

It didn’t quite work out like that.

My thesis was “right,” in that Thornburg’s defaults were nonexistent. But it didn’t matter. The company still ended up facing margin calls and was forced to liquidate even its performing loans in an illiquid market.

It didn’t matter how “quality” the assets were. The company was still forced into bankruptcy, and I saw a total loss on my investment.

That wouldn’t have mattered much if my position had been small … but Thornburg was the single largest position in my portfolio. The losses I took in that stock set me back years and turned what would have been an otherwise decent year into a disaster.

Never again. From that point on, I resolved to never put more than 3% to 5% of my portfolio in any single stock, and for more speculative positions — I keep it significantly lower.

Every good investor has their own set of rules on position sizing. You don’t have to necessarily copy mine. But you need to have position sizing rules. This is the single most important risk management decision you can make.

Other risk tools help as well. Had I set a stop-loss, I could have kept the damage under control. Or had I simply not continued to add to a losing position, my position size would have been more manageable. But ultimately, the damage I took came down to poor position sizing.

So, if you want to be a better investor in 2023, control the risk you take and make position sizing a big part of that story.

Speaking of risk…

My friend Mike Carr believes we might have a lot more downside yet to come, particularly in tech stocks.

Previous tech bear markets have grinded on for multiple years, and Mike has a few tricks up his sleeve to absolutely crush it betting the other way.

Adam and I will be joining Mike on The Banyan Edge Podcast on Monday to see what he’s been up to. Join us! You won’t want to miss this one.

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