musings: gold, Tesla (TSLA), McDonalds (MCD), memory chips…


my view is that the stock market in the US is just drifting as it waits for an upturn in corporate profits to begin to take place.

I see two opposing currents in this overall sideways movement, though:

–a rolling downturn that began with TGT and WMT announcing they had gigantic amounts of excess stay-at-home inventory last May, just as the pandemic was giving up the ghost. TGT lost a third of its value back then and has gone sideways since. WMT was down by about 25%, but has steadily recovered to the point it’s pretty much unchanged since then.


The latest to be hit are the makers of computer memory chips like Micron (MU). This is pretty much a commodity business, meaning there’s either shortage or surplus. But semiconductors are more like food products than, say, gold, in that rapid advance in design and manufacturing techniques means that they have a finite shelf life.

In any event, MU says we’re now in oversupply. Typically, when glut hits this kind of end-of-the-cycle company, we’d be close to the final negative economic shoe dropping

–the second is portfolio readjustment in anticipation of a modest economic upturn to come later this year or early next. This itself has two complementary targets: bombed out business-cycle-sensitive stocks where the hope is that all the current negatives have already been discounted; and companies that are coping with the current flux more deftly than the market has been anticipating.


good news and bad. The good news is that MCD just reported better than anticipated quarterly earnings. This is also the bad news. That MCD doing well appears to be a sign the consumers in general are trading down from higher-priced rivals. This is similar to the way in which WMT is gathering new customers for its grocery offerings–people who are economizing as they feel an economic pinch


Gold is up by about 20% from its October lows, and 10% ytd. The big buyers are foreign central banks. This could be recognition that the handiest alternative–US Treasury bonds–were going to be a bad bet until interest rates peak in the US. If so, you’d have to guess the rally is on its last legs.


Cathie Wood of ARK, a very early, anti-consensus-but-very-right, TSLA bull is now arguing that the company could be trading at 12x the current stock price by 2027. Her idea, if I understand it correctly, is that subscription sales of self-driving car software will make up 2/3 of the company’s revenue by then, and presumably a much larger portion of the company’s profits. (In fact, she may be saying that this is a case of razor/blade or copier/paper, where the manufacturer sells the basic equipment at/below cost in order to lock the client in to the recurring consumables purchase.)

What I find most striking about her projections are that by 2027 she estimates that TSLA will be selling about 15 million cars a year, or 11+ times the 2022 production rate. This would give the company a 20%+ share of the world auto market four years from now. That would handily surpass the market share of current world leader, Toyota, which sold 9.5 million cars last year.

Although this may sound a bit old fashioned, there’s no discussion that I can see of potential PE multiple compression as/when the bullish case unfolds. TSLA currently trades at around 50x eps, or more than double the multiple of the S&P 500, presumably in kind of fuzzy anticipation of a rosy future. In contrast, Toyota, the world leader, trades at 10x, and #3, HyundaiKia, trades at less than 4x. GM is at 5x, as is VW. The group isn’t made up of real world beaters, but to a considerable degree, I think, the low multiples express the market’s opinion that at 10%-ish market share, growth prospects are limited. As far as I can make it out, the ARK analysis is that this won’t be the case for TSLA.

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