Investors in Tesla Inc. may want to consider reducing their exposure to the company ahead of a potential SpaceX initial public offering (IPO). This strategy is based on the idea that investors may want to reserve their funds for the highly anticipated SpaceX IPO.
Cramer’s Bold Take
CNBC host Jim Cramer shared his thoughts on JPMorgan’s recent downgrade of Tesla to a “Sell” rating, which predicts the stock will plummet by approximately 60%. Cramer believes that this downgrade could lead to a rotation trade, where investors sell their Tesla shares to buy into the SpaceX IPO when it becomes available.
“Bold… Must mean people are going to sell this one to buy SpaceX”
The Downgrade to Sell
JPMorgan’s downgrade of Tesla is based on a disconnect between the company’s fundamentals and its recent price action. The bank notes that expectations for Tesla’s financial and operational performance have “collapsed” across virtually every metric through the end of the decade, yet the stock has rallied more than 50%. This mismatch implies that the market is baking in a massive inflection in Tesla’s performance sometime after 2030, which may not materialize.
Key Points of the Downgrade
- Expectations for Tesla’s performance have “collapsed” across virtually every metric
- The stock has rallied more than 50% despite the negative outlook
- Analyst price targets are up over 30% over the same window
- The market is baking in a massive inflection in Tesla’s performance sometime after 2030
The “Dump Tesla, Chase SpaceX” Trade
Cramer suggests that investors may want to consider selling their Tesla shares and using the funds to invest in the SpaceX IPO. This trade is based on the idea that SpaceX is already posting real operational milestones and carries intense IPO hype. With Tesla’s near- and medium-term story looking worse, investors may want to look for alternative investments that offer more promising growth opportunities.
Current Market Conditions
- Tesla stock was up 0.91% at $363.86 in Monday’s premarket trading
- Investors are advised to be cautious about paying current prices for Tesla’s distant, high-execution-risk payoff
Conclusion
The “Dump Tesla, Chase SpaceX” trade may be an attractive option for investors looking to capitalize on the highly anticipated SpaceX IPO. By selling their Tesla shares and using the funds to invest in SpaceX, investors may be able to tap into a more promising growth story. However, it’s essential to carefully consider the risks and potential rewards of this trade before making any investment decisions.