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— Our tortoise (CVX) is unchanged YTD with hare Tesla (TSLA) (New economy) leaping 44% since January 1.— This runaway stock performance versus our plodding reptile (Old Economy) has me scratching my head— Having a competitor after your lunch or sharing lunch with your competitor … Which would you prefer?— I ask and attempt to answer, what has changed in either story?I am not a Tesla haterWhat Elon Musk has accomplished with Tesla is monumental (A total green field automobile company start-up) plus the stock has made a lot of people rich. Likewise, those who have been irrationally exuberant about the name have lost a lot of money. I have never owned the stock, nor have I or anyone that I’m associated with shorted the stock. What has prompted me to write this post is my perception that the craziness that has existed in this market a year ago (Tesla $384.29, 4-5-22) still appears to be alive and well.From its low on January 6, 2023, the stock rallied to close at $177.90 last Friday, a nearly 77% jump in less than a month on the news or an earnings and unit sales beat. The numbers were huge with revenues up 51.35% at $81.5 billion and earnings per share up 121.9% at $3.62. This is what you get for being first mover with an innovative product people want. Nonetheless, for what is primarily an automobile manufacture (yes, I know they do batteries and other products and concepts) Tesla is l not cheap. At $101 in may have been a value or at least a super trade but it was an auto company trading at 3.8 X TTM revenues and 28 X TTM earnings. Meanwhile ford (F), also primarily an auto manufacture with 7.6% share in the electric vehicle market, trades at a market cap equal to 33% of its revenues and a TTM PE of 5.84 times (General Motors [GM] sports similar valuation metrics).I get it these companies may not be are innovators but they are competitors (a colony of hares chasing the same carrot) just as Hyundai Motor Co. and affiliate Kia (7.1% EV market share). They are all out to eat Tesla’s lunch. BTW although Tesla is the biggest fish in the EV market their market share of the 5.3% EV market dropped from 72% to 65% last year. This may have been part of the reason for their price cuts in earlier this month.I realize that I am not plowing any new ground with this commentary but I’m trying to set up a contrast with an old economy stock that was plundered on an earnings miss at the same time Tesla was going parabolic.
Tesla’s run vs Chevron’s collapse is a head-scratcher
Image Source: PexelsIt is especially so when you come at it from the perspective of mounting EV competition, loss of market share and price-cutting. Chevron on the other hand is intriguing because it is attractive on a valuation and as a corollary to the ascension of Tesla and the electrical vehicle market.Tesla and its ilk (new economy) plus the huge focus on climate that existed with the advent of Covid 19 had a profound effect on how the oil companies managed their capital. This is not to mention the fact the the price of oil went to negative $40 per barrel at the peak of the worldwide economic shutdowns. I covered this in October of 2020 with a post titled The death of Oil. At the time there was much talk about the displacement of fossil fuels by EVs and other clean energy alternatives. Chevron was mention in the piece and was about $73 at the time of publication. BTW this trauma also extended to the way sovereign producers like the Saudis viewed their oil wealth. All producers were beginning to see the possibility of the gravy-train derailing and responded by truncating development projects. Domestic and international producers responded by investment and returning development money to shareholders via dividends and buybacks. These companies are still investing and US production is growing but not at breakneck speed as was the case in previous run ups in the price of oil. The words now are capital discipline in the face of energy alternatives. Even at $80.00 per barrel on West Texas Intermediate crude significant profits can be made by these firms simply cutting back on their exploration and development expenses. This is in the face of worldwide oil demand that still appears to be growing.
Eating Someone’s Lunch vs. Having Lunch
This year our tortoise, Chevron (CHV-$174.20), posted a record profit of $36.5 billion even with oil prices returning to pre-Ukrainian War levels. the 4th quarter number came in about $.30 shy of expectation but was still above $4.00 per share. Annualize this in a flat oil price environment and you still come up with a multiple of slightly over 10 times. The dividend is $6.00+ for a yield at the current price of 3.47%. Oh yes and they bough back $14.7 billion worth of their stock last year. In the past they probably would have invested much of that in finding more hydrocarbons, growing reserves. Not so now because they are not sure as much demand will be there in the new greener world we live in. They did invest $15.7 billion in operations in 2022 and they plan to invest $17 billion in operations this year. plus, the just upped their share buyback program to $75 billion. Chevron is not alone in this behavior pattern. All the hydrocarbon energy sector got religion in 2020 and that does not seem likely to change any time soon. They have curbed their former enthusiasm for boom-bust cycles. Not to imply collusion but these competitors appear to be sharing lunch as opposed to trying to eat each other’s lunch.Which would you rather own Chevron at 9.54 X trailing twelve-month earnings, paying 3.47% with a $75 billion (tax efficient) buyback teed up or Tesla, where every morning the completion gets up licking its chops ready to go after your lunch?Also, ask yourself the what if the pundits are wrong and demand is stronger than expected and the world gets caught short because of under-investment in new reserves?What are your thoughts?More By This Author:Ball of Confusion Or Eve of Destruction — The Ugly ContinuumIs It “Groundhog Day” … Or Should We Call This Movie “Back To The Future?” China Contagion, Powell’s Speech And Nvidia — Make Or Break Moments?
