Should I buy Tesla shares for my ISA today?

Tesla has had a phenomenal run in 2020. The carmaker will be included in the S&P 500 later this month but will Nadia Yaqub buy?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Tesla (NASDAQ: TSLA) shares are on fire right now. The stock has soared over 600% in 2020 and UK investors can’t get enough. It’s the eighth most purchased shares on the Hargreaves Lansdown investment platform. Pardon the pun, but Tesla’s share price performance has been electric.

Bearing this in mind, is this stock rally likely to continue? Let’s take a closer look at the investment case.

Strong results

Revenue from Tesla’s automotive division has been growing quarter-on-quarter, which has helped the share price. Most of the company’s sales come from its electric vehicles, but Tesla also has a growing energy generation and storage segment.

Things look promising for the energy business as demand for its solar products remains strong. Tesla shares have rallied as investors are banking on the hope that it can grow this alternative division and diversify its revenue.

Inclusion in S&P 500

Recently, Tesla shares have soared on the news of it entering the S&P 500. The inclusion of the company means that all the passive funds that track the index will need to buy the shares in substantial quantities. I believe this bulk buying means that Tesla shares are likely to continue to rise in the short term.

The heavy buying from the index-tracking funds is expected to be temporary. I believe traders are using this opportunity to buy and sell Tesla shares around the inclusion date on 21 December. I’m a long-term investor and so will focus on the company’s performance, rather than its index inclusion.

Market reaction

The surge in Tesla shares has been met with mixed views. Goldman Sachs has just upgraded the stock from a hold to a buy with a price target of $780. Tesla shares are currently trading at $643, which means that investors could get a further 20% gain.

According to marketscreener.com, 11 out of 37 analysts rate Tesla as a hold, with 9 rating it as a buy. From this I deduce that the consensus view is to wait and see as investors are unsure whether to dip their toe in.

Not everyone is positive. Hedge fund manager, Michael Burry is bearish on Tesla shares. He featured in the 2015 Hollywood hit The Big Short after predicting the 2008/09 housing market crash. Burry is pessimistic on Tesla’s outlook and has even advised the founder, Elon Musk to take advantage of the sky high stock price to raise more cash.

Be cautious

Elon Musk himself has warned Tesla’s employees that the share price could get “crushed like a soufflé under a sledgehammer”.

He highlighted in a recent leaked internal email that the company’s actual profitability is very low. Investors are placing emphasis on future profits, which if not met will result in the price tanking.

Stock price

There’s no denying that Tesla shares have performed well in 2020 but I can’t justify buying the stock for my portfolio at current levels.

Rather than the direct stock, I would prefer to buy Scottish Mortgage Investment Trust, which has an impressive track record. It’s a global portfolio of private and public companies and includes Tesla, should I want some exposure to the company.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Nadia Yaqub has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Tesla. The Motley Fool UK has recommended Hargreaves Lansdown. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Growth Shares

3 wide-moat FTSE 100 stocks that offer value today

These FTSE 100 companies have some of the widest economic moats in the index. And right now, Edward Sheldon believes…

Read more »

Investing Articles

Yielding 10.6% after a 20% decline, are abrdn shares simply too cheap to ignore?

Buying a falling knife can be a risky strategy, but Andrew Mackie believes the abrdn share price decline might be…

Read more »

Investing Articles

£20,000 in savings? Here’s how I’d aim to turn that into passive income of £994 a month

A Warren Buffett investment from 1994 returns 60% each year in dividends. With enough time, could Stephen Wright achieve a…

Read more »

Young Caucasian woman with pink her studying from her laptop screen
Investing Articles

If I’d put £20,000 into a FTSE 100 tracker a year ago, here’s what I’d have now

The FTSE 100 is having a great year so far this year, and it seems overdue. What's the best way…

Read more »

Tanker coming in to dock in calm waters and a clear sunset
Investing Articles

BP share price decline is presenting a gift for value investors

As the BP share price decline accelerates following disappointing earnings, this Fool’s long-term bullish stance has not changed.

Read more »

Investing Articles

1 S&P 500 company from my ‘best stocks to buy now’ list

Zaven Boyrazian explains why this cheap-looking S&P 500 growth enterprise is on his ‘best stocks to buy now’ list for…

Read more »

Investing Articles

Down 70%, is this former FTSE 100 name set to explode like the Rolls-Royce share price?

The Rolls-Royce share price has already flown, but Roland Head wonders if this famous FTSE 250 faller could be the…

Read more »

Black father and two young daughters dancing at home
Investing Articles

2 dividend stocks I’d buy for a lifetime of passive income

The London Stock Exchange is filled with lucrative dividend stocks waiting to be discovered. Here are two long-term winners on…

Read more »