High-growth US stocks such as Apple (NASDAQ: AAPL) and Tesla (NASDAQ: TSLA) are popular with UK investors at the moment. Last week, Apple was the second most bought stock on Hargreaves Lansdown. Meanwhile, Tesla was the third most purchased stock.
Should you follow the herd and pile into Apple and Tesla stock? Here’s my view.
Buffett’s top stock
Starting with Apple, this is a stock I’m a big fan of. It’s actually my largest overall portfolio holding. I was snapping up Apple shares when tech stocks crashed in late 2018 and so far, the stock has been a brilliant investment for me. It’s also been a fantastic investment for Warren Buffett (it’s his largest holding too). Incredibly, he’s up around $100bn on Apple.
There are many things I like about Apple. One is the company’s brand power. This provides a competitive advantage. Another is the ecosystem the company has built, where all Apple products connect to each other. This is another competitive advantage.
I also think there’s huge growth potential here in the long run. One area in which Apple still has a lot of room for growth is healthcare. CEO Tim Cook is hoping that healthcare will be Apple’s biggest contribution to mankind.
Would I buy Apple stock today though? The answer is no. After an exponential run over the last few months, The stock now trades on a forward-looking P/E ratio of about 40, falling to 35 using next year’s forecast. That’s too high for my liking. In my view, there’s risk to the downside right now. The average broker price target is actually 13% lower than the current share price.
Personally, I’d wait for a better opportunity to buy Apple stock. I think, with a bit of patience, investors will have the chance to buy Apple at a more reasonable valuation at some point.
Turning to Tesla stock, it’s a very similar situation.
This is a company that I like a lot. It makes brilliant products, has a strong brand, and has plenty of growth potential. Not only could it be a major player in electric vehicles, but it could also be a top player in autonomous driving and renewable energy.
Yet I’m not convinced that Tesla stock is a buy right now. Just look at the chart. Does that share price run look sustainable to you?
Tesla has only just become profitable. For FY20 and FY21, the consensus earnings forecasts are $1.85 and $3.07. That puts Tesla stock on a forward-looking P/E of 257, falling to 155 for next year. You don’t need me to tell you that’s expensive.
It’s also worth pointing out that of the 32 analysts covering Tesla, only six, or 19%, have the equivalent of ‘buy’ ratings. Nine analysts, or 28%, have the equivalent of ‘sell’ ratings. The average price target of $290 implies downside of around 35%.
All things considered, I don’t think now is the best time to be buying Tesla stock.
Apple and Tesla are both great companies, in my view. A good company doesn’t always make a good investment, however. Paying a very high price for a good company can backfire on you.
All things considered, I think there are better stocks to buy right now.
Edward Sheldon owns shares in Apple and Hargreaves Lansdown. The Motley Fool UK owns shares of and has recommended Apple and 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.