The news comes in a routine but closely monitored regulatory filing, led by Capital Group Investment Management PTE. LTD. disclosed that it sold four percent of its holdings in the company Tesla, Inc. in the Q4. The firm sold 1,996 shares, bringing its holdings of the EV maker to 65,579 shares. The other stake, the last of its kind, was worth approximately twenty nine point five million dollars, as of the latest SEC disclosure. Tesla remains a significant 4.8 percent stake in Capital Group Investment Management’s portfolio, but it is his fourth largest investment, behind only Apple, Exxon Mobil and Comcast. This is not necessarily a vote of no confidence for those that follow the money flow on the institutions. Rather it is more commonly a sign of routine portfolio rebalancing or profit taking following a strong run. But, when a serious money manager starts to pare back even a little, it does raise the question if they are aware of some near-term uncertainty that retail investors might not be aware of.
The interesting part of this deal is the institutional ownership of Tesla, as seen on a broader level. The company’s stock is still largely owned by certain large money managers, including hedge funds, which together own 60.2 percent of it. It’s an unusually high degree of institutional concentration and that points to Wall Street’s smart money still being in the game. In the fourth quarter, Vanguard Group Incorporated bought 6.5 million shares, boosting its stake by two point six percent. Today, Vanguard owns almost 250 million shares worth more than 126 billion dollars. On the other hand, State Street Corporation improved by just a mill by three hundred forty four thousand shares to total over one hundred thirteen million shares valued at approximately fifty point six billion dollars. Geode Capital Management LLC’s ownership of the stock increased by zero point six percent in the fourth quarter with the acquisition of 375,946 more shares. Meanwhile, Capital World Investors upped its stake by an additional 2.4 million shares for a 5.8 per cent gain in the third quarter. But, most significantly, Norges Bank created a wholly new job at Tesla worth some seventeen point one billion dollars in the fourth quarter.
The combination of variations in trims and builds tells a nuanced story. A number of funds are holding back on making any new investments, while others are looking to capitalize on the current price. It’s really the kind of divergence that you would anticipate to see for a company like Tesla that is never traded in a straight line and always hotly contested by pro’s.
The situation is not so clear on the analyst side. A total of 22 equity research analysts are now Buying, 17 are holding and five are selling on Tesla.There are 22 equity research analysts who are currently Buying, 17 who are Holding and 5 who are Selling on Tesla. That is a pretty average rating for a company that has already presented revolutionary products, and one that would leave even the bulls a little uneasy to see the company trading at the valuation it has. The median price target is four hundred four dollars and thirty seven cents on average for all analysts. However, opinions on Tesla’s future are very different, and so are individual targets. President Capital has recently upped its estimate for the stock from four hundred twenty four dollars to four hundred twenty eight dollars and kept its Buy rating. Mizuho, on the other hand, cut its forecast from five hundred forty dollars to four hundred eighty dollars but maintained an “Outperform” rating. UBS Group upgraded its target from Neutral to three hundred sixty four dollars from three hundred fifty two dollars. Needham and Company LLC reiterated its Hold recommendation with a target of $100.Needham and Company LLC reiterated its Hold rating, but did not change its target. We upgraded our rating of Tesla from Sell to Hold, which means that we believe the company’s prospects have become more favorable.
The recent analyst commentary strongly reflects the shift of focus to autonomous driving and robotics as the next big value drivers. There have been several reports that suggest that the key to Tesla’s future isn’t EV market share, but whether Elon Musk’s team can get fully self driving technology to scale. It’s a risky, but worthwhile wager. The sentiment for autonomy is genuine, and that is why some analysts continue to set higher targets despite the faltering of the traditional auto metrics. The worries are just as valid, though. Competition is getting fierce around the world, particularly from Chinese companies such as BYD Auto, and the valuation of Tesla has little margin for error. If there is one quarter of disappointment and/or a significant delay in full self driving rollout, then repricing will be drastic.
So what does all this imply for an average investor sitting on the sidelines? The deep levels of institutional ownership are good on the upside. Vanguard, State Street and Norges Bank aren’t known for their impulsiveness. Continuing to be there, or even growing in number, is a sign of a minimum level of faith in Tesla’s long-term narrative. But the mixed analyst ratings and the relatively underwhelming drop by Capital Group Investment Management are a reminder that even the biggest enthusiasts of Tesla recognize its volatility. The stock has been known to move violently on news, sentiment and on Musk’s tweets. Long-term believers have seen buying opportunities in the pullbacks. The current Hold consensus and the $400 price consensus range indicate that it may be best to wait for a better entry level for the more conservative investor.
