Other Voices: The Truth About Tesla

Eddy Elfenbein on why he loves Tesla but investors might be wiser to buy an overlooked stock instead

By Eddy Elfenbein

I have to admit something to you—I love Tesla (TSLA). I think it’s an amazing car company. I’m a big believer in the product, and I realize that Tesla is radically upending the global auto industry. Not only that, but Tesla is changing the world energy market.

I think the company will grow and grow.

The stock has been a bit hit as well. Since the IPO nearly ten years ago, shares of Tesla have gained more than 1,300%. That’s compared with the 227% for the S&P 500 Total Return Index, which includes dividends.

However, I should add a footnote to Tesla’s amazing gain. You don’t often hear this in the media, but there’s a very important fact.

The large bulk of Tesla’s outperformance came during a very short period of time. Between March and September 2013, shares of Tesla gained 440% while the S&P 500 Total Return Index advanced by just 10%…

I know you’re thinking. I’m cherry-picking data. Perhaps, but that’s not my point.

I want to be clear that I’m not denigrating Tesla’s success in any way. That 1,300% gain still counts, and investors should rightly be proud.

My point is that the complete picture shows that the outperformance can happen during a very brief time. Outside that six-month window, the shares have basically been market performers.

That’s not an insult.

In fact, It happens to all companies. One of the most basic lessons for investors is that there’s a big difference between a good company and a good stock. With Tesla, you have a great company, an amazing technology, and a very skittish share price.

That’s hardly a surprise. A century ago, there were hundreds of American car companies. It didn’t take long for Detroit to be synonymous with the Big Three.

I’m not predicting that Tesla’s share price is about to fall in half. I’m just reminding investors that this year, Tesla’s share price already fell in half! If you’re looking for great returns, Tesla is an excellent place to start.

If you’re looking for a great steady return, then Tesla probably isn’t for you. I wouldn’t be surprised to see Tesla have a similar run like it had six years ago where it creams the market over a period of a few weeks. The problem is you never know when it will happen.

I like to call these “rabbit stocks.” Like rabbits, they can sit still for a long time. Then suddenly, out of nowhere, they can dash off at top speed.

Remember that Amazon (AMZN) once fell over 70%. Before that, it fell over 95%. I don’t mind a little volatility in my portfolio as long as I know what I’m focused on is long-term gains. Some stocks are the complete opposite of Tesla. These are low-volatility stocks that keep steady during the storm.

One of my favorite low-volatility stocks in Globe Life (GL). That’s the new name for Torchmark.

In fact, Globe Life isn’t merely a low vol stock; it’s one of the most stable stocks you’ll find on Wall Street. It’s a slow-and-steady gainer.

Globe Life is a diversified financial services company based in McKinney, Texas. The company provides life insurance, annuity, and supplemental health insurance products.

On August 8, Torchmark became Globe Life Inc. The new symbol will be GL. (I’m generally not a fan of modern business names, but this isn’t bad.)

The company says that “the name change is part of a brand alignment strategy which will enhance the Company’s ability to build name recognition with potential customers and agent recruits through use of a single brand.”

I’ve been impressed by GL’s performance recently. A few weeks ago, Globe Life reported Q2 earnings of $1.67 per share. That was two cents per share above the Street.

The details were pretty good. Net income as an ROE was 12.3%. Net operating income as an ROE, excluding net unrealized gains on fixed maturities was 14.6%. For the year, Globe Life projects net operating income per share will be between $6.67 to $6.77. The current price is around 14 times that even though the stock just hit a new high.

The Q3 earnings report is due out in late October. Wall Street expects earnings of $1.69 per share. I think Globe Life has a good shot of beating that. Wall Street consistently underestimates this company. Over the last 14 quarters, the company has beaten earnings 12 times. The other two times, they met expectations.

Globe Life doesn’t get much attention, but over the last five years, the shares have nearly doubled while Tesla is down slightly. There’s wisdom in owning a stable stock like Globe Life.

This post was sponsored by Tim Plaehn, expert on income investing and a friend & colleague of mine at Investors Alley as well as a contributor here on SeekingAlpha. Tim runs the Dividend Hunter newsletter which offers a solid & diverse selection of attractive high yield plays. The service now has 9,000 active subscribers and can be had HERE for the rock bottom price of $49 (It usually is $99) for the first year. There are few better bargains around for those looking for solid income plays to balance their high beta holdings especially when equities get volatile!

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