🚘 Tesla crashes

Together with Danelfin

Good morning investors! Netflix had a great day yesterday but things may not be rosy as we await economic data. Furthermore, Bitcoin is still stuck at $40,000.

Today we cover:

• US GDP report is coming.

• Tesla misses.

• Diversifying your stock portfolio.

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📊 Economy and News 

All eyes on US fourth-quarter GDP

Fourth-quarter gross domestic product report, expected to be announced today, has the power to impact various sectors.

A growth of 2% is expected at a seasonally adjusted annualized pace.

Investors will be keenly looking for data related to consumer spending, which played an important role in the last quarter, and inflation, which will dictate the possibility of interest rate hikes.

Some agencies, including The Bank of America, expect a lower growth rate of 1.5%, whereas some expect it to go above 2%, with a general consensus of 2%.

A slower economy is expected but we’re not entering a recession, echoed most analysts.

The USD is treading water ahead of the report and the stock market seems to be silent.

Global hits:

• China property stocks jump as Beijing takes steps to boost liquidity in the beleaguered sector.

• United Auto Workers union endorses President Joe Biden for reelection over Trump.

• Survey shows U.S. firms favor India over China.

📈 Stocks

S&P 500 4,868.55 (+0.081%)
DJIA 37,806.39 (-0.26%)
NASDAQ 17,499.30 (+0.55%)
BRENT CRUDE 81.06 (+1.65%)
* Prices as of Jan 25th, 12:20 AM UTC

Tesla misses and predicts a dull 2024

Tesla announced earnings yesterday and the results are not impressive. It missed on both top and bottom line results:

• Adj EPS: $0.71 vs $0.73 est

• Rev: $25.17B vs $25.87B est

Tesla’s revenue growth has slowed to just 3% due to increasing competition and falling interest in EVs.

Operating margin for this quarter stood at 8.2%, nearly half when compared to the same quarter last year.

Total production saw a jump of 13% YoY, with deliveries up 20% YoY. However, it took a hit in one sector – the average selling prices.

Net income for the quarter more than doubled to $7.9 billion, or $2.27 per share, from $3.7 billion, or $1.07 per share, a year earlier. The increase was mostly due to a $5.9 billion one-time noncash tax benefit.

Slowing growth: Auto revenue increased just 1% from a year earlier. Also, executives declined to give any specific guidance on Tesla’s humanoid robot, called Optimus.

Trouble ahead: Vehicle volume growth in 2024 “may be notably lower” than last year’s growth rate, the company warned.

The company cautioned investors that it’s “currently between two major growth waves.”

What Musk said: As expected, Musk was asked about his recent demand to gain more control.

He responded by saying he doesn’t want to be in the position to be “voted out by some sort of random shareholder advisory board,” and he floated the possibility of creating a dual-class share structure.

Cybertruck: The unique vehicle, which Musk called a ‘head turner’ is now finally reaching customers.

Tesla said it now has the capacity to build more than 125,000 Cypertrucks in a year.

Shares fell -5.99% after the report and might go lower due to expected downgrads. Moreover, shares of Tesla suppliers in Asia are also down.

Good news: IBM shares rose after earnings top estimates in ‘uncertain, volatile’ economy. Moreover, Nokia jumped 7% as it announced a $653 million share buyback program. Furthermore, Netflix is now at a new 52-week high as it jumped 10% yesterday. Lastly, Microsoft yesterday became only the second company to cross the $3 trillion mark.

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💵 Personal Finance

Stock diversification

A very important rule of investing is diversification, i,.e: not to put all your eggs in one basket.

Some investors diversify on a very basic level. For example, they choose different asset classes. Though effective, this might not be the best technique. You need to diversify further.

How?

Let’s talk about stocks.

You can diversify within stock as well.

This is important because it ensures that no single company has too much influence over the value of your holdings.

The average diversified portfolio holds between 20 and 30 stocks. We think 25 is a decent number but that's not a rule. It also depends on how much money you’re spending and how aware you are of the market.

Benefits of having a large portfolio: It reduces risks, including company-specific and sector risks. Moreover, it offers protection against large losses, and opportunities for tax-loss harvesting.

Disadvantages of having a large portfolio: A large portfolio can be tricky to manage and also costlier, based on your broker.

Benefits of having a small portfolio: Outliers can have a greater impact on your portfolio, helping you make more money. Plus, fewer stocks are easier to manage.

Disadvantages of having a small portfolio: There is a higher risk of losses, especially if one stock ends up moving in the opposite direction.

An easy solution: A great way to stay diversified and avoid these issues is to invest in an ETF you trust. You can easily find industry-specific stocks and some with greater diversification with dozens of stocks in their portfolios.

Check this video for more on ETFs:

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👩🏽‍⚖️ Legal Stuff
Nothing in this newsletter is financial advice. Always do your own research and think for yourself.

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