Some thoughts about certain Nasdaq stocks

Published by Alex Bugeja on September 1st, 2020 7:48am. 288 views.

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Watching all the crazy action in some Nasdaq names, particularly Tesla, is certainly interesting. Go figure. The stock splits by five times and apparently on that basis alone keeps rocketing skyward. I thought it was SpaceX that was supposed to take us to Mars, but it looks like Tesla's stock chart may be reaching higher at this point. 

Certainly can't blame Elon for raising $5B at these prices today. Indeed, the only question that comes to mind is... why not more? The market is obviously ready to pay. The stock is even up again by several points in the premarket on this news!

I may be dating myself here, but it all brings to mind this quote from Stanley Druckenmiller regarding his caving in and buying tech stocks at the peak of the 2000 tech bubble:

“I bought $6 billion worth of tech stocks, and in six weeks I had lost $3 billion in that one play. You asked me what I learned. I didn’t learn anything. I already knew that I wasn’t supposed to do that. I was just an emotional basketcase and I couldn’t help myself. So maybe I learned not to do it again, but I already knew that.”

The Robinhooders piling into Tesla these days may be in worse shape than Stan was... I kind of doubt they "already know that".

While on the subject of quotes from that time period, Zoom announced great quarterly results yesterday but when I see this kind of price target raise from analysts - a target that values the company at 30x 2022 sales! - another one from Scott McNealy, then CEO of Sun, comes to mind:

"At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?"

Zoom of course is a software, not hardware, company, with a better cost structure than Sun Micro had, but I think the general point holds.  

Famous last words or not, investors obviously think that "this time is different" all over again. We'll see. I make no claim to know how this movie ends, though it's fun to watch. I personally suspect that at some point we'll see at least a rotation of some of this tech stock money into the beaten-down sectors (energy and banks come to mind), particularly if there's a trigger in the form of a credible COVID-19 vaccine or therapeutic. 

But... who knows when that could be?