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With Tesla up about 700% this year, investors should avoid thinking about growth at any price and rather diversify their portfolios to older stocks.
Wells Fargo Securities, the securities arm of American multinational financial services company, Wells Fargo & Co (NYSE: WFC) has released its top 10 predictions for 2021 and sensational electric vehicle manufacturer Tesla Inc (NASDAQ: TSLA) is featured as number one, but with a piece of advice for the company’s investors.
The growth of Tesla this year and in the past five quarters has created the ultimate headlines for discussion among Wall Street analysts. Many fear that the meteoric rise of the company which has made it amass a bigger valuation than nine of the world’s top automobile manufacturers including Toyota, and Volkswagen amongst others, is not sustainable in the long run.
The Wells Fargo prediction on Tesla says that the company may be the new AOL, an American web portal and online service provider founded in 1985 and based in New York City.
“It reminded us so much about 1998 — the late ’90s,” the firm’s head of equity strategy, Chris Harvey told CNBC’s “Trading Nation” last week. “AOL, similar to Tesla had a game changing technology, incredible performance [and] it goes into the [S&P 500] index late in the year in December after an amazing run. But it was a seminal event.”
According to Wells Fargo, AOL came into the limelight riding on the back of innovative technologies but the acclaim was fast eroded as the media giant at the time was unable to keep up with the fast pace of new technologies been rolled out. While the comparison suggests that Tesla may suffer a similar fate in the near future if it becomes redundant in rolling out new technologies or gives in to competitors.
With Tesla up about 700% this year, Harvey told clients to avoid thinking about growth at any price and rather diversify their portfolios to older stocks.
“They need to start looking at cyclicality. They need to start thinking about getting more high Covid-beta names in their portfolios,” he said. “Old economy, not new economy.”
Still More Warnings about Tesla Rolls In as 2021 Is Coming
The Tesla investors are in a much better position right now with the recent rally the company has experienced and seen in its share price. Notwithstanding, analysts are much more cautious of the company’s growth in the future especially as Apple Inc (NASDAQ: AAPL) has revealed its plans to begin the manufacture of its self-driven car by 2024.
Considering the fact that Apple is a very big company awash with liquidity and market influence, Tesla will certainly begin to see the almost absent competition in the EV and self-driving auto market when Apple’s vehicles are out in the market.
Based on this reality, Michael Farr noted that betting on Tesla at this time is too risky for investors noting that buying stocks too high usually results in lower returns being amassed over time. With the longer-term sustainability and commensurate competition a big tick Tesla is yet to tick, Michael, as well as other analysts, advise caution before betting on Tesla.