Just looking at the share price chart already gives an indication of the wild swings in sentiment we have seen about Tesla in the stock market at different points.

It is down 36% since the start of the year. That is a big fall for any company, let alone one that – even after the fall – commands a market capitalisation of over $800bn.

Despite that, the share is still up by over 50% in the past year alone. Over five years, things look even better: shareholders over that period are now sitting on a 437% gain.

Tesla seems to confuse many investors

So, what is going on here?

Some of the movement reflects Tesla’s almost meme-like qualities for a company of its size, with lots of investors taking a strong view based on factors like their opinion of its chief executive.

But most meme stocks have a market capitalisation of a few billion dollars at most. I think there is something very different going on when it comes to Tesla stock: even many sophisticated investors are genuinely confused about how to value it.

Is it a car maker with attractive profit margins in recent years, now seeing sales volumes level out?

In that case, even adding in some extra value for its fast-growing power generation business, the current market capitalisation looks loopy to me. It is 20 times the market cap of Ford, for example.

Or, is Tesla really an investment case about a proven ability to innovate and disrupt massive industries, as it has already done with cars and may yet do with taxis and robotics? In that case, I see an argument for Tesla potentially being a long-term bargain at the current price.

Investing on facts, not hope

Tesla has done a very impressive job when it comes to business growth. Revenue has soared in recent years. Broken down into a quarterly revenue number, though, and as the chart below shows, there is clear cause for concern for Tesla investors right now.

Created using TradingView

This week, the company announced a woeful first quarter as the company fights fires on multiple fronts. Not only has it seen falling sales, but profits slumped too. The first quarter saw revenues fall by a fifth compared to the same period last year.

Meanwhile, earnings per share (on a Generally Accepted Accounting Principles basis) fell 71% compared to the same quarter last year. Already, Tesla’s price-to-earnings (P/E) ratio of 143 looks far too high for me to consider investing. But if earnings fall, the valuation will look even less attractive.

Created using TradingView

I do see hope for the non-automotive business. Energy generation and storage revenue surged 67% year on year in the first quarter. But it still represents only around 15% of total revenue.

For now, at least, power generation and pipeline projects like automated taxis look too unproven to justify the current Tesla valuation. With rising competition, the vehicle business also looks overvalued to me.

Taken together, based on current facts not future hopes, I see Tesla stock as overvalued and will not be investing.

The post Could Tesla stock be a brilliant bargain in plain sight? appeared first on The Motley Fool UK.

Ford

The first stock is Ford (NYSE:F). The company’s debt presents an investment risk that is worth considering. But despite this, I think that there might be an opportunity here from a value investing perspective.

Last year, Ford made just over $9.75bn in operating income. The company currently has a market cap of around $73.1bn. Including the company’s total debt of just under $140bn and $20.5bn in cash means an investment return of around 6% based on last year’s figures.

By itself, I think that’s okay. But the real value I see here comes from Ford’s electric pick-up, which is set to launch well ahead of its rivals. Last year, the top three selling vehicles in the US were all trucks. I think this means that the electric pick-up market will be important and Ford’s head start will prove valuable. That’s why I see Ford as a value stock to consider buying in March.

Tesco

Another stock on my value radar is Tesco (LSE:TSCO). The company typically produces around £2.5bn in operating income. Right now, it has a market cap of just under £22bn. It has £15.67bn in total debt and £2.4bn in cash. Since Tesco is a fairly stable business, this brings me to expect a return of around 7.5% annually from the underlying business.

Tesco’s current assets don’t cover its current liabilities. For many, this is seen as risky. It means that the company isn’t as financially flexible as it might be. I view it as a strength, though. It means that the company is able to sell the goods it purchases before it has to pay its suppliers for them. I think that Tesco is a stable business trading at a great price. That’s why it makes my list of value stocks to buy in March.

Wells Fargo

Last on my list of value stocks to buy in March is Wells Fargo (NYSE:WFC). The company currently trades at a price-to-book (P/B) ratio of around 1.25 and has a return on equity of around 12%, which implies a business return of around 9% annually. Wells Fargo has been facing two major headwinds. The first is low interest rates, which pressure margins on its core business. The second is that it has been operating under an asset cap due to its past misdemeanours.

I think that these headwinds might be about to abate, though. I expect US interest rates to rise steadily and I expect Wells Fargo to meet the conditions for its asset cap to be lifted. The risk with this investment comes from how soon either of these might happen. But even if these take longer than anticipated, I think that the business will do well over the long term. This is why it makes my list of value stocks to buy in March.

The post 3 dirt-cheap value stocks to buy in March appeared first on The Motley Fool UK.

I’ve commented before that Tesla’s valuation is too rich for me to buy its shares. I can’t say that about Ford, though. Let’s take a look at the stock in more detail.

The bull case for Ford

The doubling of F-150 Lightning production is a good sign for the company’s prospects in the growing EV market. The target now is for 150,000 electric trucks to be made by 2023, well above the prior target of 80,000. What’s more, this is due to accelerated demand for the F-150 from consumers reserving the truck. I view this as a bullish sign for Ford stock.

It’s not surprising to see Ford being able to double its EV production capacity. Only in September, the company announced it was going to lead America’s shift to electric vehicles. To do so, Ford has committed $11.4bn to build a mega campus and battery plants in the US.

This is significant, because it’s an established carmaker with expertise in how to mass-produce vehicles worldwide. Ford delivered almost 4.2m vehicles in 2020 (final numbers are pending for 2021), while Tesla delivered a far smaller 500,000. Now, Tesla’s production numbers are growing, but it remains a smaller player. If Ford can accelerate its EV production line then it may also see a huge boost in its stock price, as Tesla has in recent times.

What are the risks?

Ford has actually been a terrible investment for shareholders until last year. The stock peaked at almost $18 in 2014, and didn’t regain this price until November just gone. It was generally regarded as an ex-growth blue-chip company. Therefore, there’s a lot riding on the success of its EV business for the stock to rally further.

I’m also not too keen on some of the company’s metrics. It achieves a small gross margin in the low teens that has been falling for a number of years. It hasn’t been able to generate significant returns on its capital. Of course, I have to keep in mind that this is a manufacturing company, so these values are generally small anyway.

Should I buy Ford stock?

It clearly could become a major player in EVs. But taking everything into account, I’m going to wait a little while longer before I think about buying some shares. Ford still has considerable investment ahead to pivot its legacy manufacturing business to electric, so I’ll wait for further updates to gauge progress. There are other EV stocks I can consider in the meantime.

The post Is Ford stock the best buy to profit from the EV sector? appeared first on The Motley Fool UK.