Tesla (TSLA), Netflix (NFLX) and Amazon (AMZN) — wow! With over 100% gains since their lows in March for the last two and a whopping over 400% gain in the first one, these stocks have certainly been the stars of the recent rally.
But you know, or should know, the old Wall Street saying, “Bulls make money, bears make money and pigs get slaughtered!” It’s starting to feel awfully piggish to me in these three names — at least in the near term.
Before I go any further let me say this: Don’t try to short these names. Shorting stocks is a tough game to play in the first place, as losses can be unlimited in theory, but shorting these names is akin to jumping in front of a runaway train.
You’re gambling that the train will run out of gas before it hits you — that the gas will run out for sure — before it reaches you.
If you’ve enjoyed the incredible ride up in these names over the past few months, it’s time to take a breather. Wait, you might say, things have never been better for these names. Tesla is seeing rising demand and starting to ramp up production, Amazon is delivering to everyone in America, and Netflix is the perfect antidote for the COVID housebound blues and recently racked up an impressive amount of Emmy nominations.
Exactly! If you know all of that good news, don’t you think the professional traders do as well? And wouldn’t you think that all of that good news is likely to be priced into these stocks in a relatively efficient market? How much better can things get?
For Tesla, which had the dubious distinction of being ranked the worst car manufacturer by Edmunds.com with 250 problems per 100 vehicles in the first 90 days of ownership, volatility is common.
Between the boasts and tweets from their leader, Elon Musk, to missing manufacturing goals time after time, the stock has been quite the roller coaster.
I know I sound old when I talk about it, but Ford — with revenue of more than $280 billion — has a market cap of around $28 billion. Compare that to Tesla’s $280 billion market cap, with less than $25 billion in revenue. I know Tesla is more “exciting” but is it really anything but a car company, even if it’s a really good one — which apparently is in question.
The right move
On to Netflix. A couple of concerning things beyond the rapid acceleration as of late. First, it’s hard to imagine life getting much better for them — a country quarantined with nothing to do but binge watch TV shows and movies.
It seems that anyone who had any inkling to sign up for their services would likely have done so over the past few months. Also, costs for content continue to rise. According to Variety, 2020 Netflix content costs are estimated to be roughly $17 billion and will only escalate from there. That’s a lot of subscribers required to foot that bill in the face of rising competition from Disney, NBC, Hulu, and other streaming services
Finally, Amazon. With the number of Amazon trucks I see around my neighborhood they seem to be taking over the world, and they might be, which could lead to some antitrust concerns down the road.
But that’s not the issue today. The rapid rise, combined with the continued rise, in costs required to make all those deliveries — and the possibility of labor unrest by discontented workers— lead me to believe that taking some profits here is the right move.
Don’t be a pig. Pigs get slaughtered.