May 2019, Tesla - "We have Liftoff!"

[Buckminster]

Our very own Oracle - DJ FC stated earlier today that we are 99.99% likely to be included in the S&P500 in May.
Coming from FC, that makes it a Fact. Opposed to a Factoid for reference.
I have listed on another thread the sheer number of good things happening around that time and before. I am bullish on SP ahead of May but no longer as confident as I was - those shorts combined with the big banks are motivated, moneyed and clever.

The scene is set:
The background being rising sales, another profitable Q4 ER & Model Y reveal. If they are not enough, May will be historic:

It will start with ER note: Here we will find out that Tesla is profitable for a third quarter in a row.

2 hours later comes the call. Elon will be like a new man knowing what comes next. Expect him to do it live on video wearing shorts which he will burn ceremonially during the Jonas questions (using the Not a Flamethrower obviously).

Following this, Mr Market will crunch the numbers and realise (possibly for the first time..):

Hell - this means that all financial sites will show a positive p/e ratio tomorrow. That means all retail investors (Grandpas the world over) will be buying tomorrow.
Then they will crunch the same numbers all over again because they will think that the numbers were wrong. How can the fastest growing company have a p/e ratio half of AAPL. Now the penny has dropped but we are not done yet.

Finally, when learning just how much they have been caught out, they will "phone a friend". Probably some guy that does the laundry at Goldman Sachs. He is gonna say, "how many Tesla shares are you going to have to buy?". Answer "none - I missed the boat". His friend then says - "but what about all the pensions/funds etc. around the world built upon the S&P500?".

We now have achieved lift-off:-

Have I missed anything?

 

[GOVA]

Me likey. Will check back in May. Good one.

 

[Buckminster]

I left out the Moody upgrade because I believe FC suggested it would be earlier than May - April?

 

[anthonyj]

Moody’s upgrade won’t happen. They are corrupt

 

[nursebee]

Why does inclusion mean lliftoff will occur?

Can you provide examples?

The only that I remember is Redhat. I was expecting to find a bad example...
Start of 2009 in was near 14.
Added 7/17/2009
Popped up the next day.
End of 2010 >40.
Now 173

Any others?

 

[nursebee]

How to Trade the Latest S&P Additions

That article seems to be a more balanced than ultra bulls round here or the RHT example.
50% beat SP500

 

[Buckminster]

Why does inclusion mean lliftoff will occur?

Can you provide examples?

The only that I remember is Redhat. I was expecting to find a bad example...
Start of 2009 in was near 14.
Added 7/17/2009
Popped up the next day.
End of 2010 >40.
Now 173

Any others?

View attachment 366266

Others have indicated that they expect S&P inclusion to be highly beneficial. The reasoning includes the following:

1) It will happen following other major positive news items - combined they cannot be pushed down by FUD
2) S&P inclusion would be difficult to spin as negative
3) It forces the likes of Morgan Stanley (big banks) who have been forcing the SP down to buy on behalf of themselves and clients (pension funds the world over)
4) The shorts will no longer be supported by the big banks and will feel less than invincible and therefore start covering
5) Due to purchasing of a significant number of shares for the pension funds / funds / ETFs etc. the fear of a short squeeze could cause further covering
6) The pool of shares available to purchase for short covering and mandatory fund purchases will cause a short squeeze or at least something substantial
7) Now that the big banks are owners (along with their clients) increasing their target to something bullish would seem to be logical

S&P inclusion may not have been as positive for other stocks previously but TSLA is fairly unique. It is massively undervalued and highly shorted.

Count the number of S&P ETFs on this list. This is just the US ETFs only.. A fraction of what will have an S&P component.
List of American exchange-traded funds - Wikipedia

 

[nursebee]

Others have indicated that they expect S&P inclusion to be highly beneficial. The reasoning includes the following:

1) It will happen following other major positive news items - combined they cannot be pushed down by FUD
2) S&P inclusion would be difficult to spin as negative
3) It forces the likes of Morgan Stanley (big banks) who have been forcing the SP down to buy on behalf of themselves and clients (pension funds the world over)
4) The shorts will no longer be supported by the big banks and will feel less than invincible and therefore start covering
5) Due to purchasing of a significant number of shares for the pension funds / funds / ETFs etc. the fear of a short squeeze could cause further covering
6) The pool of shares available to purchase for short covering and mandatory fund purchases will cause a short squeeze or at least something substantial
7) Now that the big banks are owners (along with their clients) increasing their target to something bullish would seem to be logical

S&P inclusion may not have been as positive for other stocks previously but TSLA is fairly unique. It is massively undervalued and highly shorted.

Count the number of S&P ETFs on this list. This is just the US ETFs only.. A fraction of what will have an S&P component.
List of American exchange-traded funds - Wikipedia

Yes but the study I linked suggested bullish expectations actually bode poorly for the stock performance.

 

[neroden]

TSLA's a weirdo case, because normally stocks get added to the *bottom* of the S&P 500, not way up high in the market cap list.

The most comparable case is the addition of BRK.B, perhaps.

Berkshire Hathaway to join S&P 500, shares soar | Reuters

(Interestingly, it retested the pre-S&P-addition price in September 2012, then started its big rally)

 

[neroden]

Yes but the study I linked suggested bullish expectations actually bode poorly for the stock performance.

Bullish *analyst* expectations. Tesla obviously has bearish *analyst* expectations.

 

[neroden]

S&P 500 addition should actually make Tesla more correlated with the rest of the stock market (due to cash flows between index funds and cash). It is going to meaningfully reduce the float, however.

 

[nursebee]

My read of the recommendations by analysts is that the average is about average. This read comes from just a minute worth of work.

The broad market data of being added to an index does not favor giant moves.

If it were a viable strategy surely the smart money knows about it and is or will move in a larger manner.

I think it is wiser to consider an investment in TSLA based upon a much broader analysis than the "SP500 addition liftoff" strategy.

 

[Buckminster]

I think it is wiser to consider an investment in TSLA based upon a much broader analysis than the "SP500 addition liftoff" strategy.

You are perfectly correct of course. Hence, I have listed one or two more here:
Dry powder / milestones

 

[ggr]

I haven't tried to check the numbers myself, and don't have time at the moment, but how much profit would Tesla have to make in Q4 for the year 2018 to be profitable overall? This would meet the S&P inclusion requirements, wouldn't it? So is it possible/realistic that it might happen in February?

 

[Buckminster]

I haven't tried to check the numbers myself, and don't have time at the moment, but how much profit would Tesla have to make in Q4 for the year 2018 to be profitable overall? This would meet the S&P inclusion requirements, wouldn't it? So is it possible/realistic that it might happen in February?

Pretty sure FC and others have run the numbers on that - it doesn't work however bullish you are on Q4 ER unfortunately.

 

[mongo]

I haven't tried to check the numbers myself, and don't have time at the moment, but how much profit would Tesla have to make in Q4 for the year 2018 to be profitable overall? This would meet the S&P inclusion requirements, wouldn't it? So is it possible/realistic that it might happen in February?

1.25 billion give or take.

 

[Buckminster]

From main thread:

New A couple of months ago I estimated it to around 7 million TSLA shares, worth 2.4 billion dollars at today's prices. (But my confidence in this estimate is low.)

I.e. about 5% of Tesla.

Roughly equivalent to the Tencent event, or last June's run-up when the Saudi PIF was buying ~8 million shares.

But there's a halo effect as well, S&P 500 inclusion will unlock a whole new tier of investors.

Twitter ($TWTR) was included in the S&P 500 last June: price went from $28 to $46, a +65% increase, which was sustained until August.

During the recent $300 drop June and August 4xx+ call options were still ridiculously cheap.

Not advice, things could go wrong: recession, Trump, Elon tweeting or Tesla narrowly missing profitability in Q1.

5% probably a minimum I would think. On top of 20% shorts.... Who is going to sell to them?

 

[Fact Checking]

1.25 billion give or take.

That's unlikely for Q4, unless they managed to sell a very large number of ZEV credits.

No doubt they earned a billion dollars worth of ZEV credits by selling over 230k EVs in 2018 - but the ZEV market is not estimated to be that large - in 2017 they sold ~$300m credits.

Plus they have about ~$500m of deferred revenue that they could recognize due to meeting the AutoPilot milestone in Q4.

So not totally impossible, but they should probably save those up to improve Q1 results.

 

[TheTalkingMule]

Nixing the referral program is a phenomenal move that should boost 1Q/2Q margins nicely!

 

[uselesslogin]

Have we discussed that the S&P inclusion would use GAAP earnings? Q2 2018 was -$4.19. We got $1.75 in Q3 so Q4 and Q1 need to average $1.23 each. That probably is still possible but it all depends on what Elon means by a tiny Q1 profit.