We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
When I saw the news on Tuesday evening just after 5pm ET, I said for the first time ever that I wanted to be short shares of Tesla Motors (TSLA - Free Report) .
That’s because the buyout of “sister” company Solar City for roughly $2.5 billion doesn’t look good on the surface. And for richly valued companies who have been given a pass because of their visionary CEO, not looking good can lead to an investor exodus.
Here’s what I told clients in a note on Tuesday night…
Forget Brexit! We've Got a Thermonuclear Musk-et Backfire!
Just when I thought it was going to be another sleepy day to sell the rally before Brexit (or Bremain, since I still think it's a sell either way), the day got really interesting.
No, not the Fed's report on how expensive P/E multiples are.
I'm talking about Elon Musk trying to implode his own Solar System!
From the second I heard the news after 5pm ET, I thought 3 things...
1) The class action lawyers are throwing a party about the huge lawsuits they are going to have.
2) Musk has jumped-the-shark with his premature vision of an "integrated, alternative energy-transportation" company.
3) Short TSLA shares immediately above $210 cause they are going toward this year's low at $140
#3 already worked out good in AH as shares fell to $193.
But I should clarify that I actually respect Musk and his vision after I learned more about what has driven him. I just know that Wall Street has given him a lot of leeway with his multiple dreams and he may have just taken advantage of it that free pass.
Why would there be lawsuits?
Because there always are in takeovers. But this one is so easy to throw darts at it's not even funny. He's saving one of his companies -- one of his babies, really! -- using the other kid's (shareholders') money (TSLA shares). I don't know how it got past both boards. Unless everybody just says yes to Elon.
Why would the stock go toward this year's low at $140?
Because that's what happens when Wall Street has given you every chance and then you go a little more "off the reservation." You will start to see it at the margin at first, but slowly, this analyst and that hedge fund are going to back away and go neutral on TSLA (sell their shares).
The shorts smell blood like never before. They will take every bit (or a lot) of hot air valuation out of it.
We may buy puts or short the stock tomorrow. Stay tuned.
(end of Tuesday evening private note to clients)
Blindingly Obvious, or Just Brazen?
Well, the blood is definitely in the water today as SCTY shares give back most of the implied premium of the potential deal and TSLA shares flirt with $205 before heading back below $200 again on very heavy volume of nearly 20 million shares (four times average).
And many analysts are also less sanguine than they were at this time yesterday.
Barclays analysts noted "While no doubt the Tesla bulls will hail the combination as visionary, we believe the assumption of another $2.6 billion of debt to fold in a solar company with limited synergies and uncertain growth/cash prospects only reinforces our negative view of TSLA."
And Oppenheimer analysts downgraded their rating to Market Perform and removed their $385 price target in view of the new uncertainties.
In the video that accompanies this article, I discuss those "uncertainties" with my colleague Dave Bartosiak. And we also review the long-standing Solar City short thesis of hedge fund manager Jim Chanos who today told CNBC "the "brazen Tesla bail-out of SolarCity is a shameful example of corporate governance at its worst."
Further, in an article by CNBC's Jennifer Ablan, Chanos was quoted as saying "SolarCity, whose bonds were yielding 20 percent yesterday, is a company headed toward financial distress. It is burning hundreds of millions in cash every quarter, a burden that now Tesla shareholders will have to bear, at a total cost of over $8 billion."
Watch our video and get all the color.
Disclosure: I am short Tesla shares and long puts for the Zacks Tactical Trader portfolio.
Kevin Cook is a Senior Stock Strategist for Zacks Investment Research where he runs the Tactical Trader portfolio.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Tesla's Solar City Bail-In
When I saw the news on Tuesday evening just after 5pm ET, I said for the first time ever that I wanted to be short shares of Tesla Motors (TSLA - Free Report) .
That’s because the buyout of “sister” company Solar City for roughly $2.5 billion doesn’t look good on the surface. And for richly valued companies who have been given a pass because of their visionary CEO, not looking good can lead to an investor exodus.
Here’s what I told clients in a note on Tuesday night…
Forget Brexit! We've Got a Thermonuclear Musk-et Backfire!
Just when I thought it was going to be another sleepy day to sell the rally before Brexit (or Bremain, since I still think it's a sell either way), the day got really interesting.
No, not the Fed's report on how expensive P/E multiples are.
I'm talking about Elon Musk trying to implode his own Solar System!
From the second I heard the news after 5pm ET, I thought 3 things...
1) The class action lawyers are throwing a party about the huge lawsuits they are going to have.
2) Musk has jumped-the-shark with his premature vision of an "integrated, alternative energy-transportation" company.
3) Short TSLA shares immediately above $210 cause they are going toward this year's low at $140
#3 already worked out good in AH as shares fell to $193.
But I should clarify that I actually respect Musk and his vision after I learned more about what has driven him. I just know that Wall Street has given him a lot of leeway with his multiple dreams and he may have just taken advantage of it that free pass.
Why would there be lawsuits?
Because there always are in takeovers. But this one is so easy to throw darts at it's not even funny. He's saving one of his companies -- one of his babies, really! -- using the other kid's (shareholders') money (TSLA shares). I don't know how it got past both boards. Unless everybody just says yes to Elon.
Why would the stock go toward this year's low at $140?
Because that's what happens when Wall Street has given you every chance and then you go a little more "off the reservation." You will start to see it at the margin at first, but slowly, this analyst and that hedge fund are going to back away and go neutral on TSLA (sell their shares).
The shorts smell blood like never before. They will take every bit (or a lot) of hot air valuation out of it.
We may buy puts or short the stock tomorrow. Stay tuned.
(end of Tuesday evening private note to clients)
Blindingly Obvious, or Just Brazen?
Well, the blood is definitely in the water today as SCTY shares give back most of the implied premium of the potential deal and TSLA shares flirt with $205 before heading back below $200 again on very heavy volume of nearly 20 million shares (four times average).
And many analysts are also less sanguine than they were at this time yesterday.
Barclays analysts noted "While no doubt the Tesla bulls will hail the combination as visionary, we believe the assumption of another $2.6 billion of debt to fold in a solar company with limited synergies and uncertain growth/cash prospects only reinforces our negative view of TSLA."
And Oppenheimer analysts downgraded their rating to Market Perform and removed their $385 price target in view of the new uncertainties.
In the video that accompanies this article, I discuss those "uncertainties" with my colleague Dave Bartosiak. And we also review the long-standing Solar City short thesis of hedge fund manager Jim Chanos who today told CNBC "the "brazen Tesla bail-out of SolarCity is a shameful example of corporate governance at its worst."
Further, in an article by CNBC's Jennifer Ablan, Chanos was quoted as saying "SolarCity, whose bonds were yielding 20 percent yesterday, is a company headed toward financial distress. It is burning hundreds of millions in cash every quarter, a burden that now Tesla shareholders will have to bear, at a total cost of over $8 billion."
Watch our video and get all the color.
Disclosure: I am short Tesla shares and long puts for the Zacks Tactical Trader portfolio.
Kevin Cook is a Senior Stock Strategist for Zacks Investment Research where he runs the Tactical Trader portfolio.