Short

Is Tesla Disruptive? | Asymco

Looking from every angle I am unable to find the way that Tesla is asymmetric. Disruption theory suggests that whatever causes it to survive or prosper will be embraced and extended by competitors precisely because it will also cause those competitors to survive and prosper.

The auto industry may be a lot slower than the computer industry to respond. But once the industry embraces battery-based power, it will convert a world-wide production and distribution system to sustain itself.

That does not mean Tesla is a bad business. They may carry on with Porsche-like or even BMW volumes for a long time. But that’s not a disruptive outcome, it’s a niche strategy.

There is one more point. As Tesla has chosen to share its intellectual property and as Elon Musk has stated publicly, they welcome others to build the same cars they do. So by their own admission the company does not seek to disrupt. Disruption is a competitive stance.

Is Tesla Disruptive? | Asymco.

Short answer: no. So the huge premium that the market puts on TSLA is completely unwarranted. Their car business will not take off, Apple style. So I guess shorting it will prove the good strategy in the medium-long term. For the record, now TSLA is $249.

Short orders placed

After yesterday’s study I decided to place the following short orders:

ETFC: BUY PUT APR. 2015 20 @ LIMIT 1.40

EBAY: BUY PUT APR. 2015 45 @ LIMIT 1.25

SONC: SHORT SELL @ LIMIT 25.50

NFLX: BUY PUT JUL. 2015 355 @ LIMIT 30.80

BBRY:  BUY PUT MAR. 2015 9 @ LIMIT 0.66

TSLA and LNKD were also on my short list but they have upcoming earnings so I will wait for those to pass.

I need the market to grow a bit more for those orders to get executed, and then turn and dive. I intend to collect profits on them in tranches after each 5% fall in the market.

I also placed an order to sell my remaining (pretty big) position in BIB (the biotech leveraged ETF) with a limit of 114.80.

Short candidates for the upcoming bear market

The anticipation of the end of QE this month and the start of rate hikes next year has prompted the market to do a correction and has moved volatility into multiple year high territory. This may very well be a multi-year top being formed. And so we should use the current rebound to look at some good short candidates for a bear market.

I have some long bets (mostly AAPL and BIB) and I would like to hedge them using some shorts (put options). My ideal short is:

  • high flyer/close to a recent all time high;
  • has a broken model, or at least losses or an impossible high P/E and PEG;
  • has lost a lot of value during the Sept-Oct correction;
  • as high beta as possible.

So far I found the following:

Screen Shot 2014-10-23 at 19.12.02

The most interesting to me are:

ETFC – E-Trade is an online broker that will fall quickly when it won’t be profitable for retail investors to be long in the market anymore.

TSLA – Apart from their bet on self-driving cars (which is still a number of years away) they don’t have much growth coming, are still not profitable and overvalued. They fell a lot in the recent correction and even Elon Musk publicly admited that they are overvalued. I still like their vision and I am very sorry for listening to Cody and not betting on them at $77 as I wanted to. But now they must come down to Earth, especially in a bear market.

EBAY – Just pleased Icahn and decided to spin off PayPal, which is being disrupted by Apple Pay and its value has colapsed. And the online market business is attacked by BABA and AMZN. And they are not profitable. So there.

BABA – A lot of speculators here. And more shares coming to float in the next months. And overvalued, though their PEG is not as bad as Amazon’s. Little history, little insight into corporate governance, so wild card, but I guess in a bear market it will fall a lot.

YHOO – Profitable but overvalued and with low growth, and their only prop is the fact that they still own about 10% of BABA and the cash from selling another 15% at IPO.

LNKD – It’s been around forever, and I never liked it. They sell services to recruiters, but they are not profitable. But it fell already.

SONC – this smaller cap greasy cheap food chain shorted by Cody is priced to perfection while its business model is under attack from the green/healthy food movement. Profitable and with a big short ratio, it may continue to surge for a while.

NFLX – pressured by the cable operators with which they need to partner while they intend to disrupt, and not able to offer latest movies because of its cheap rates, NFLX has lost a lot after its last report and may rebounce a little, but its high valuation will come under attack in a bear market.

What do you think guys? Any edge on these stocks? Any other short ideas?