Trading Desk: Tesla’s Big Stall Leaves Growth Investors In The Lurch

A week ago, life on Wall Street had a clear favorite to cling to in a rapidly unfolding earnings recession. Big Tech had stalled, the banks had gotten scary and the consumer economy felt like it was living on borrowed time . . . but Tesla was in the sweet spot where increased scale was turning into solid earnings growth.

Now we know that isn’t likely. Tesla is still scaling up production but discount pricing is cutting into almost all the benefit the company is booking on the revenue side. Profit is actually dropping.

In effect, while the company is running faster and faster to make cars, the effort at best leaves the fundamentals standing still. We’re still looking for 20% revenue growth this year . . . but those extra cars on the road won’t improve the bottom line one bit.

Depending on who you talk to, Tesla earnings are probably going to go DOWN 3-10% this year. That’s a problem for shareholders who wanted to rally around one headline stock moving fast in the right direction.

And it’s a problem for the market as a whole. A week ago, we were looking for the consumer sector to be the standout in terms of earnings growth this year. Unfortunately, Tesla’s anticipated trajectory was going to be a big part of that math . . . and now it’s probably off the table.

It’s a problem of success and size. The stock is so big right now that nearly 14% of all capital flowing through the entire sector is parked in Tesla. That’s a good thing when the company is moving forward. When it goes into reverse, all that momentum turns negative.

On its own, Tesla’s acceleration was going to add about 5 percentage points of growth to the sector. With the exception of one key stock, everything else was stuck in the earnings recession or at best treading water.

That’s what we’re left with. What was once the hottest sector we could count on even if the rest of the S&P 500 froze over no longer looks quite so hot. Factor out that key stock and you’d probably find more heat just buying the market as a whole. You’d find more excitement in Big Food or Walmart.

When utilities are tracking 3-4X as much growth, you’re not a growth sector. Now that Tesla has stalled, that’s the position we’re in with the consumer stocks as a group . . . no appreciable growth here, nothing to see, move on if you’re looking for a thrill.

The real thrills are in old-fashioned industries: telecom, airlines, transports. They don’t sizzle. They aren’t sexy or especially disruptive. When that’s the hottest game in town, the market is looking pretty cold.

And that’s okay. It’s the kind of environment that favors the perceptive and the patient. We’ll keep making money finding the scattered growth spots and keeping our cash circulating among cheap names worth a rebound.

This year should reward swing traders and long-term vision. Only the swing traders will get anything like instant gratification. By definition, the long-term wins probably won’t mature before 2024 at the earliest.

By that point, Tesla will either be pointed forward again or Elon Musk will have other problems. Either way, the market has ruled him out as the savior for 2023.

The focus now turns to Amazon, which is theoretically bouncing back from last year’s losses fast enough to look like a growth miracle on paper. I don’t find it compelling in the long haul, but if you insist on a single standard-bearer for growth, this is it.

Of course I’d rather play a team approach. I was just telling my GameChangers subscribers about a few companies that are comfortable telling shareholders that earnings will go up 10-20% this year. That’s where you want to be, if you want growth.

A year from now, Amazon will maybe report $2.57 per share in profit if all goes according to plan. This is a company that earned $3.24 per share back in 2021. Smooth out the wild swings and the trend actually points DOWN until we get well into 2025.

That’s two years away. Do you have that kind of long-term vision for the company? In that case, I salute you. You’re a real investor. If not, there are better things to trade.