|Top Percentage Gainers -- Wednesday, June 30, 2010|
|Company Name (Ticker)||Intra-Day Price||Intra-Day
|52-Week High||52-Week Low|
|Ford Motors (NYSE: F)||$10.40||+5.3%||$14.57||$5.24|
|Tata Motors (NYSE: TTM)||$17.67||+4.6%||$20.84||$7.37|
*Table includes companies with minimum market capitalizations of $200 million and three month trading volumes of at least 100,000 shares. All percentage returns are listed as of 11:30AM Eastern Standard Time. Click on ticker symbols for up-to-the-minute price quotes and percentage gain data.
Tesla is a Magnet for Investors
It’s been quite a week for executives at Tesla Motors (Nasdaq: TSLA), which sells high-performance electric cars. When the week began, it was unclear if the choppy stock market action would cause its imminent initial public offering (IPO) to land with a thud. But by Monday afternoon, its bankers lined up ample demand for the new shares, enabling a deal to be priced at $17, above the $14 to $16 planned range. Demand was so strong that shares soared, closing the day at $23.89 -- a +40% gain from the IPO price, even as the broader market was tanking. And on Wednesday morning, shares are up another +23%. The company is now valued at more than $2 billion. As a point of reference, the company has sold a little more than 1,000 cars after two years of sales efforts.
So why are shares proving so popular at a time when established auto makers like Ford (NYSE: F) and advanced battery makers such as A123 Systems (Nasdaq: AONE) are trading so poorly? Perhaps because the company has considerable buzz among die-hard car fans, who are enticed by the chance to buy the first auto-related IPO in more than 50 years.
But there’s plenty of reason for concern. For starters, consumers will have many more electric car models to choose from during the next few years, all of which should be more inexpensive than Tesla’s current and future models. In addition, it’s unclear if demand for Tesla’s cars can be sustained after early adopters snapped up cars sold in the first few years. Many auto designs see their sales peak in their first few years on the market. Lastly, Tesla has never made money and is unlikely to turn a profit any time soon. So it is likely to burn through that IPO money in less than two years, requiring yet more capital.
Action to Take --> Tesla’s valuation has become completely disconnected from reality, as shares are being pushed higher by traders and not investors. Once momentum investors see the trade start to fade, shares should quickly feel gravity’s pull and work back towards that IPO price. If you want to play the burgeoning electric car trend, you may want to look at A123Systems or Ener1 (NYSE: HEV), a pair of advanced battery makers that are now trading on the cheap.
Ford Bounces Back
As noted above, shares of Ford (NYSE: F) had fallen from grace recently, dropping below $10 for the first time this year. A cooling economy in Europe, where Ford derives a big chunk of sales, was the primary headwind, although recent U.S. new car sales data also appear to be weakening. I remain bullish on Ford, despite the recent slump, spelling my thoughts out here.
Shares are seeing a nice +5% gain on Wednesday after Ford announced that it is retiring about $4 million worth of obligations to its employees’ health care funds and credit arm. That’s a bullish sign, as the auto maker has confidence that it need not hoard all of its cash for the next rainy day. In recent days, rumors had circulated that Ford would issue fresh stock to cover the health fund and credit division obligations, which pushed shares lower on dilution fears. But shares were punished so much that it made less sense to issue shares. (The lower the share price, the more shares it would have needed to offer).
Ford has done a solid job during the past few years of managing its balance sheet, but investors have surely felt the pain of dilution. Shares outstanding have risen from around two billion at the end of 2007 to a recent 4.6 billion. Investors look forward to the day when Ford can start buying back stock, which is at least several years away.
Action to Take --> Ford continues to make the best of a bad situation. By paying down debt, the company will save nearly $500 million in annual interest expense. At some point soon, Ford will have completed all of its financial maneuverings, and the era of ever-rising dilution will end. At that time, investors will start to focus on Ford’s earnings potential. After break-even results last year, Ford should earn at least $1.25 a share this year and at least $1.50 a share next year, at a time when the global economy is still slumping. When the United States and European economies are back on their feet, Ford could earn more than $3 a share. Not bad for a $10 stock.
Tata Sees Better Pricing Ahead
Rounding out today’s winners is yet another auto maker, Tata Motors (NYSE: TTM), which is the largest auto maker in the world’s fastest-growing auto market -- India. Tata sells everything from motorcycles to the Nano, the world’s cheapest car, to expensive lines such as Jaguar and Range Rover.
Shares are getting a +5% lift on Wednesday, putting them within striking distance of an all-time high. The gains are coming from a Wall Street Journal article that discussed recent price increases among Indian car makers. The Indian middle class is growing at a rapid rate, which should enable these car makers to start to sell more premium vehicles, which carry higher profit margins.
Action to Take -->Tata Motors doesn’t have much of a following on Wall Street in terms of analyst coverage. But this company is an excellent for the fast-growing Indian economy. India will see many bumps in the road on the path to a larger economy, and its infrastructure remains woefully inadequate, but a strong set of technical skills has created a very capable, but low-cost workforce, and should pave the way for impressive long-term GDP growth. Tata Motors is one of the few ways for American investors to play this exciting market.