This star counters the curse of cult stocks

If you can handle some risk, consider this: Tesla's CEO isn't just building great cars. He's building a great stock.

By Jim Cramer Feb 20, 2014 12:51PM

A Tesla Motors car on the showroom floor in Miami, Fla. © Joe Raedle/Getty ImagesWhen I say it's a cult stock, don't bet against it, I mean a cult stock is a wily, cunning animal that can't be captured by the normal short-selling hunters, and it can give long-owning thrill-seekers the ride of their lives.


TheStreet.com logoTesla (TSLA) is the definition of a cult stock. It is the kind of stock that, as a hedge fund manager, I most feared betting against -- and, yes, I notice that our esteemed colleague Doug Kass is doing just that -- because the manager of the stock, Elon Musk, is brilliant not only at building a great car but at building a great stock.


Consider every box he checked in the quarterly statement:

  • Higher sales than expected.
  • Higher gross margins than expected.
  • Raising the forecast of cars to be sold and revenues for 2014.
  • Raising gross-margin guidance for 2014 because of economies of scale (think Henry Ford).
  • Aggressive expansion in China and Europe -- after the downturn of the latter.

Now consider all the objections Musk answered, including those from the ridiculous ancient "sell" recommendations, like Bank of America Merrill Lynch's $65 target:

  • Musk guaranteed the price of the used cars. Now it looks like used cars are maintaining or increasing in value.
  • There were worries about the cost of batteries, but we are told to stay tuned because of a major reduction in the cost of battery production.
  • Can the batteries be mass-produced? That has been a concern. Now he's talking about a "giga factory" that can make batteries not just for Tesla but for the whole solar industry. Why doubt a guy who has the very successful Solar City (SCTY) sister company?
  • Is Tesla really catching on in China? Of course it is, Musk points out, because those stores are the busiest in the chain. Oh, and unlike Starbucks (SBUX), he's not charging more for cars in China than in the U.S.
  • Can you really drive across the country, especially in the cold? Darn it all, you bet you can, and Musk has not one but two examples of people who have done it, including a citizen who is unaffiliated with the company!
  • No, Tesla will not follow the other car companies into charging "excessive" prices to customers in certain markets because that would be "inconsistent with building long-term loyalty."
  • No, Musk won't need more cash because the operating cash flow is positive, so there's no new equity offering for shorts to cover with in the immediate future.

And, of course, Musk uses every single question in the conference call to drive home these points again and again -- brilliant stage management of the call, just like the brilliant writing in the release. What can I say? This release is a virtual parody of what a long owner wants to hear -- and an actual nightmare for short sellers.


Does that mean the stock doesn't spike up and then come down so shorts can battle with it before going higher? Sure. On a day basis, but that's the case with any volatile stock.


I take a lot of heat because I call Tesla, Solar City, Twitter (TWTR), Netflix (NFLX) and Amazon (AMZN) "cult stocks." That's because I'm not coming out and saying you should buy or sell them. That's a total misread.


What I am saying is this: If you can handle the pain and heartache that could come from owning them, then by all means own them -- preferably through calls, because if they screw up, cult stocks can plunge well beyond where you thought possible.


I arrived at this analysis because I traded through the 1999-2000 period and saw the damage cult stocks can do to short-sellers and the profits they could make for the longs. I don't condemn stocks, and I don't condemn managers who know how to "run" them. I condemn illegality, and there is none here. I criticize stupidity and arrogance, as have been the case with several other tech stocks over the years.


But Tesla? My hat is off to Elon Musk. He has made a study of cars. He has made a study of growth stocks. And he knows how to make both better than anyone I have ever seen in history.


Jim Cramer headshot



Jim Cramer's Action Alerts Plus: Check out this charitable trust portfolio and uncover the stocks Cramer thinks could be winners. The portfolio has no positions in the stocks mentioned.




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35Comments
Feb 20, 2014 1:14PM
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I'm still not a believer in Tesla.  I'm definitely not interested in any of their cars, but if I was, I wouldn't even know where to go to buy one or even take a test drive.  Do they have dealerships?   And once I owned one, I probably couldn't work on it myself, so where would I go to get it serviced?  Something tells me the boys down at Jiffy Lube know about as much about these cars as I do.

Thanks, but no thanks.
Feb 20, 2014 2:13PM
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Elon Musk is no doubt a genius. Cramer is one too. In addition, he is also here to entertain you - he says so in his advertisements for his book!

And the Tesla car? No doubt it is a tour de force in automotive technology. I might remind you the same thing was said about the Tucker and the Kaiser!

But so what? Why would I want one? To save the environment? Well in some place in the world like Shanghai where people die everyday due to air pollution maybe. However, thinking about this isn't the pollution of an internal combustion engine being traded for what an electric utility generates? 

But maybe the pollution trade off is a good one, but what about the cost of fuel for either car? I can certainly buy a gas engine car and fuel over its life time for considerably less money than the purchase price of a Tesla. In fact, I can get a damn good one with lots of features and gizmos that'll entertain me just as well as the Tesla. 

But given all that I see a much bigger problem for the Tesla. What might that be? Well it is those charging stations. Do you remember when we had public pay phones? When you needed one, could you ever find one that still worked or even had the hand set still attached? Usually the coin box had been ripped open for the few coins inside!

I can see all the vandals and thieves going to town on them too. Just like Paul Newman in the movie Cool Hand Luke using a pipe cutter to cut the stem off. If one has to put money in them or they have any scrap value, for sure they'll be a target for low life scum. Even if they don't have any monetary value, the scum will destroy them for numerous nonsensical reasons - like they don't like the Fed!

Oh the horror!


Feb 20, 2014 2:32PM
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"There will be consequences if people step over the line," Obama said

 

He'll put his rapper on your azz.

Feb 20, 2014 2:28PM
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Remember slot cars?  They were electric.  Too small for people, but they were fun.

 

 

Feb 20, 2014 2:02PM
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Maybe that Obama rap bro can make an angry one up about the Ukraine problem.

 

Call it "Shootin Putin"

Feb 20, 2014 1:55PM
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Do they have electric car drag races yet?

 

 

Feb 20, 2014 3:16PM
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  Yup! Many car companies with cars ahead of their times, DeLorean, Study with some models, Hudson, end up having their lunch eaten buy others later.  Might not want to stay at this party to long. The right announcement from one of the big three or Toyota could hit this stock.
Feb 20, 2014 2:07PM
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Jimmy, they make less than 40,000 vehicles per year in a vehicle type that's highly at risk to Crude Prices when and if they vastly expand production. If we have a major Global Recession, they likely would not survive. I love the CEO, the Cars, and the innovation. However, this stock is way ahead of itself. Far too much Risk for the average speculator.
Feb 20, 2014 5:37PM
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And gold medals for the Canadian Women!!!!!
Feb 20, 2014 11:05PM
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If there are any traders out there trading the Forex I wanted to warn you don't waste your time I've been trying to make money with it for years! Go to the website Bionic Traders and get into trading the futures instead it's much better now I'm making money trading and very happy.

Feb 20, 2014 5:12PM
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Never did see the code of conduct.  I don't think we have moderators anymore, just the software to asterisk out bad words.  Strange, huh?  MSN doesn't care what goes on here.

 

 

Feb 20, 2014 11:06PM
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Women's skiing Half Pipe....American Gold; Great Job...And Remember Sarah.


Final W.....skate coming up...

Feb 20, 2014 6:45PM
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Women's Bobsledders did great too....
Feb 20, 2014 6:44PM
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Well at the closing bell, we fought them off...Thought we had a solid 100+, but oh well...

We will take what we can get and like it... 

Feb 20, 2014 6:42PM
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Code of Conduct ??, Code of Conduct, we don't need no stinkin' code of conduct.


The First Amendment Forever....!!

Feb 20, 2014 6:40PM
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Waterman...Yeah caught the drilling intercepts on the veins...Can't remember now if it was in China or somewhere else ??

Hoping it plays out..and pay outs...

Maybe should have sold SVM around $3.30 about a week or so..? When it ran..

I don't like messing around with stocks under $10 bucks, too many "beat down" players.

Some Gold and Silver miners, up 4 and 5%+ plus today....woooohoooo.

Feb 20, 2014 1:29PM
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The CEO is like 500 light years beyond our real economy and subsequent sustainability. Anyone can make their own path and claim it's the stairway to Heaven but history suggests every single one of these people-- crash. Too bad his "genius" couldn't exist in our own real world & dimension and do something tangible and worthwhile.
Feb 20, 2014 2:58PM
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Slot cars are fast....0 to 60 in 1.5 seconds or 10 feet.
Feb 20, 2014 2:56PM
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I still don't get it....The valuation in the vehicle or the stock...All I think of, is a DeLorean...
Feb 20, 2014 1:33PM
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Meanwhile... back at the raunch... Facebook buys something to bail itself out with. Reality says it's losing millions of subscribers, leaving kids and unproductive losers to spew every little thing their lives might do...
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