Here is the latest from Canadian Value Investors!
Meta - Thinking about Market Efficiency
2022 winners – There is always an opportunity
Is Tesla really worth 10x what General Motors is? A story through charts
Some of you may have seen the Meta jump up yesterday, closing up just over 23% in one day. Not so bad for an absolutely massive company.
But here at Canadian Value Investors we think about what a business is actually worth, not the share price. In this case, is Meta really worth ~$120 billion more today than it was yesterday morning (current market cap ~$500 billion)? Or was it underpriced the day before? We continue to think the best, easiest, opportunities are in small caps in general. But maybe we should not discard large caps just because they are large, especially when there are wild swings up and down. Afterall, Meta is up over 100% in a few months. Not bad for a behemoth.
2022 Winners – There is always an opportunity
We thought this table might inspire some of our readers. Although the S&P index was down ~20% last year, there were still about 300 companies of reasonable size that increased by over 50% in 2022. Here is a list of the biggest winners. Near the top is Ardmore, a company we owned previously. We were happy with our 67% return in 2020/2021… It’s too bad we missed out on the next 300%. Such is life.
Is Tesla really worth 10x what General Motors is? A story through charts
If you had $600 billion dollars, would you rather buy Tesla, or General Motors for ~$60MM and keep the rest as walking around money? These are the kinds of questions we ponder at night. Disclosure: We do not currently own either (might re-purchase GM), but do have a very minor long-dated put position on Tesla.
What Elon Musk and team have been able to do at Tesla is remarkable and there is an argument for the company to be worth more than good old General Motors, even though GM sells ~6 million cars a year (vs ~1.3MM for Tesla), is #1 in total U.S. sales, full-size pick up sales, large SUV sales, and luxury sport cars, also sells electric cars, and has a seemingly good autonomous driving partnership (Cruise). Maybe Tesla is the better long-term bet. However, the issue we have is the magnitude of the difference in valuations combined with some basic fundamental issues of the industry.
Tesla was built at the best possible time in modern financial history. Specifically, Tesla was ramped up during a long period of very cheap, very easy financing, which made it easier for Tesla to finance their capital intensive research and growth and for their customers to afford $100,000+ boxes of batteries.
The conundrum we have is Tesla’s market cap of $600 billion (down from ~$1.2 trillion…) must imply that: 1) they are the winner that is going to take all in the car industry, 2) will also be successful in other future products that don’t exist yet, and 3) you are prepaying for it. For context, the combined market cap of GM, Ford, Volkswagen, Mercedes, BYD, Toyota, and a few others combined is less than Tesla’s.
However…
