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What would I do with the stocks? NKE is a terrific story, and TSLA’s run into Battery Day has to be burned off, and it will.
On Wall Street expectations are everything. We don’t care where a stock has been, we care where it is going and the best indicator of where it might go, is whether it fails to meet expectations or trounces them.
Yesterday we had two classic examples of what happens when you fail to beat expectations versus when you crush them: Tesla (TSLA) and Nike (NKE) .
Yesterday, if you didn’t know, Tesla gave us the long awaited Battery Day. The fact that we had this on our calendars, the fact that we waited with the proverbial breath might have been enough to heighten expectations. But there was more to it than that. The cognoscenti got wind that Tesla impresario Elon would unveil a million mile battery, the battery you never had to throw away, the one that charges itself with solar panel on the roof and lasts for at least nine hours so you can go pretty much anywhere you want in a day without charging.
Sign me up.
It didn’t turn out that way. There was no million mile battery that could be powered by solar that could go nine hours. Instead we got a lot of stuff about how good electric vehicles are, that they are so good that the company needs a lot of factories to make all they need, perhaps as many as 20 million as we might need 20 million Teslas in 10 years.
And, he dropped that three years from now he will offer a terrific Tesla for $25,000 in large part because of the ability to bring the price of the battery down and have it made by the company.
Somehow, because expectations were so high, that was actually a disappointment. To me that’s crazy. Musk is talking about something as revolutionary as the Model T was back when Henry Ford built 15 million of them, revolutionizing transport and making it available to the common person. If you combine his battery expansion plans with his price point you could be doing the same thing and it could, perhaps, reverse our carbon footprint at the same time. It’s extraordinary.
Only in this world would someone mention that he was going to shoot for building that amazing EV for the masses and it would be greeted with a yawn. What an incredible goal! I don’t think he could ever build enough $25,000 Teslas no matter how many plants he had because he would be changing the landscape and the atmosphere of this world forever.
Yet, nobody cares. The stock got crushed.
Now, contrast that with Nike. There was a perception going into this quarter that Nike would disappoint in the United States and would have a so so quarter in China. There was a belief that Nike couldn’t do all that well in a pandemic.
China came in at 8%. U.S. down only 2%. They were supply constrained because they didn’t know how well they would do. They gave you an expectation for the future of high single digits to low double digit sales versus 5% growth. Digital sales grew 83% but that only added $900 million in incremental growth. Keep in mind that North America alone did $4.225 billion.
It’s all good. Few can match Nike’s prowess. It takes digitizing and personalization to another level. But the real genius here, WHEN IT COMES TO THE STOCK, is that no one was looking for anything special. In fact, some analysts were hedging and there were plenty of skeptics running into the quarter.
What would I do with the stocks? My charitable trust, which you can follow along at www.actionalertsplus.com , owns Nike and we have no desire to sell it up here. It is, indeed, a terrific story. Tesla? I have liked it from $66. The run into Battery Day has to be burned off. We aren’t there yet. Give it some time and we will be though.