Thursday, February 20, 2020 9:22:27 AM
8:45 am ET February 20, 2020 (MarketWatch)
Share
By Nigam Arora
Public service announcement: If you're an investing novice, you are setting yourself up for a painful lesson
Investors are beginning to show late-cycle stock market behavior. Those with less knowledge are pouring money into the riskiest areas of the stock market. For those who have been around, it is time for prudence.
Investors' new mantra: Apple (AAPL) and Amazon (AMZN) are for boomers -- we buy Tesla (TSLA) and Virgin Galactic (SPCE). Apple and Amazon are pedestrian stocks of yesterday; they do nothing interesting. Vacationing in space on a Virgin Galactic flight is around the corner. Soon we will be mining on Mars. When we return from Mars to the lowly planet Earth to visit our aging parents, we will be getting around in flying autonomous electric taxis from Tesla and staying in homes powered by Tesla solar roofs and batteries.
Also: They're bored with 20% returns over a couple months. They want to double their money.
Let's explore this late-cycle behavior with the help of a chart.
The chart
Please click here (https://thearorareport.com/chart-analysis-tesla-stock-virgin-galactic-stock) for an annotated chart.
Note the following:
-- The chart shows Virgin Galactic's stock, which has almost tripled this year.
-- Tesla, which has had a wild ride, is looking almost mainstream, to be honest: It's only doubled this year.
-- What happened to the old fogies who were trying to beat the Dow Jones Industrial Average ? Their returns are stuck at the bottom of the chart.
-- Who cares about the Dow, anyway? The most mundane investments are Microsoft (MSFT), Facebook (FB), Alphabet (GOOGL) (GOOGL), Amazon and Apple.
-- If you are a rare breed of investor who has not yet drunk the Kool-Aid of the momentum crowd, you may be thinking about risk in Virgin Galactic. Well, space is so huge and the opportunity so big, how could there possibly be any risks?
-- The volume of options in Virgin Galactic has skyrocketed. Implied volatility has risen so sharply that the old fogies won't touch them. But investors chanting the new mantra have stars in their eyes. They have never heard of implied volatility.
-- Of course, valuation is no problem for Virgin Galactic. The reason: It's not constrained by anything other than imagination. There are a lot of people with money; for them paying $250,000 for a flight is pocket change. It gets even better because the deposit required is only 50% to secure a seat. The company has already sold 600 seats. Herein lies the opportunity because millions more seats will be sold. Moreover, the flight may be very short in duration. Just do a simple calculation of the potential sales; the present low market cap of about $6 billion is a bargain.
-- Tesla's market cap is only about $150 billion. There is talk of Tesla becoming a company worth trillions. The fabulous riches to be gained are only limited by your imagination (http://www.marketwatch.com/story/a-perfect-combination-for-teslas-stock-gains-future-fantasies-short-selling-and-fomo-2020-02-04).
Highly speculative stocks
This chart (https://thearorareport.com/chart-analysis-tesla-stock-doubles-after-number-one-rank-from-zyx-change-method) shows when the ZYX Change Method ranked Tesla No. 1 among popular technology stocks on a non-risk-adjusted basis. For the sake of full transparency, this chart was previously published (http://www.marketwatch.com/story/this-is-how-tesla-ranks-compared-with-other-popular-technology-stocks-2020-02-06) and no changes have been made.
We do not have a realistic detailed analysis for Virgin Galactic at this time. It is important to understand that these are highly speculative stocks. The main drivers are short-squeezes and sentiment. For most investors, stocks such as Virgin Galactic are simply not suitable because of their high risks. For those who are aggressive, these stocks should be only a small part of a diversified portfolio. As these stocks go higher in price, analysts have no choice but to raise their targets.
It is worth repeating that the stock market is in a late bullish cycle when such behavior is common. This calls for extra caution on the part of prudent investors.
Trading opportunities for experts
Both Virgin Galactic and Tesla provide short-term trading opportunities for sophisticated investors both from the long side and the short side. Our system gave a signal to short-sell Virgin Galactic for a very short-term trade near the highs. However, there was no point in publishing that signal because the shares were not readily available to short. The plan is to trade only those setups where there is reasonable risk control. It is also important to pay attention to Arora's 14th Law: "To be successful at investing and trading, become a master of position sizing."
Disclosure: Subscribers to The Arora Report (http://thearorareport.com/) may have positions in the securities mentioned in this article or may take positions at any time. Nigam Arora (http://www.marketwatch.com/author/nigam-arora) is an investor, engineer and nuclear physicist by background who has founded two Inc. 500 fastest-growing companies. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com (mailto:Nigam@TheAroraReport.com).
-Nigam Arora; 415-439-6400; AskNewswires@dowjones.com
(END) Dow Jones Newswires
February 20, 2020 08:45 ET (13:45 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
New York Yankees and Duke Basketball
Recent SPCE News
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 05/08/2024 08:28:42 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 05/08/2024 08:27:47 PM
- Form 10-Q - Quarterly report [Sections 13 or 15(d)] • Edgar (US Regulatory) • 05/07/2024 09:01:22 PM
- Form 8-K - Current report • Edgar (US Regulatory) • 05/07/2024 08:10:10 PM
- Virgin Galactic Announces First Quarter 2024 Financial Results and Provides Business Update • Business Wire • 05/07/2024 08:05:00 PM
- Virgin Galactic Begins Operations at Delta Spaceship Ground Testing Facility • Business Wire • 05/06/2024 11:00:00 AM
- ‘Galactic 07’ Mission Launch Window Opens June 8 • Business Wire • 05/01/2024 08:08:00 PM
- Virgin Galactic Announces Date of First Quarter 2024 Financial Results and Conference Call • Business Wire • 04/23/2024 08:06:00 PM
- Paramount’s Shares Surge Following Sony and Apollo’s Joint Bid; ISS Backs Berkshire Hathaway Director Re-election, and More • IH Market News • 04/19/2024 11:31:22 AM
- Virgin Galactic Reports Inducement Award Under NYSE Listing Rule 303A.08 • Business Wire • 04/15/2024 08:06:00 PM
- Virgin Galactic Reports Inducement Awards Under NYSE Listing Rule 303A.08 • Business Wire • 03/14/2024 08:06:00 PM
- Snowflake Stock Plummets 20.3% After CEO Transition; C3.ai, Okta, and Duolingo Surge Post-Strong Quarterly Reports, and More • IH Market News • 02/29/2024 11:09:45 AM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 02/27/2024 10:22:44 PM
- Form 8-K - Current report • Edgar (US Regulatory) • 02/27/2024 09:14:40 PM
- Virgin Galactic Announces Fourth Quarter and Full Year 2023 Financial Results and Provides Business Update • Business Wire • 02/27/2024 09:05:00 PM
- US Index Futures Slightly Rise; Bitcoin Reaches 2021 High • IH Market News • 02/27/2024 11:16:30 AM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 02/14/2024 11:58:18 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 02/14/2024 11:57:40 PM
- Virgin Galactic Announces Date of Fourth Quarter and Full Year 2023 Financial Results and Conference Call • Business Wire • 02/13/2024 09:06:00 PM
- Boeing Faces Strike Threat, Palantir Up 18% After Recording its First Profitable Year, and More • IH Market News • 02/06/2024 11:14:00 AM
- Virgin Galactic Reports Flight Issue to FAA • Business Wire • 02/05/2024 10:00:00 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 01/31/2024 01:22:10 AM
- Virgin Galactic Completes 11th Successful Spaceflight • Business Wire • 01/26/2024 06:41:00 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 01/18/2024 09:58:42 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 01/18/2024 09:56:33 PM
Avant Technologies Equipping AI-Managed Data Center with High Performance Computing Systems • AVAI • May 10, 2024 8:00 AM
VAYK Discloses Strategic Conversation on Potential Acquisition of $4 Million Home Service Business • VAYK • May 9, 2024 9:00 AM
Bantec's Howco Awarded $4.19 Million Dollar U.S. Department of Defense Contract • BANT • May 8, 2024 10:00 AM
Element79 Gold Corp Successfully Closes Maverick Springs Option Agreement • ELEM • May 8, 2024 9:05 AM
Kona Gold Beverages, Inc. Achieves April Revenues Exceeding $586,000 • KGKG • May 8, 2024 8:30 AM
Epazz plans to spin off Galaxy Batteries Inc. • EPAZ • May 8, 2024 7:05 AM