The hardest part in investing in emerging markets is separating information that matters from noise only, and Wednesday's news about Facebook and Tesla is an object reader.
The audience on Wall Street had hailed on both – Facebook
shares fell 43% between July and Christmas and Tesla
TSLA, + 1.69%
has slipped 1
Nevertheless, Facebook shares rose on Thursday and Tesla fell 1% in a generally rising market. What happens and what are you going to do about it?
Nothing is safe in markets – the investment is about predicting the future – but the headlines paint both companies as in good shape in the future. Nor is it without warts – The deviation from Tesla's chief financial director explains, for example, Thursday's drop in storage – but in each case they are overwhelmed by secular technology trends and a clear view of what their customers, rather than pundits and politicians, really care and actually do .
To size up these companies, dust off memories of Peter Lynch, Fidelity's fund manager who built the Magellan Fund into a giant. His advice to rely on common sense and buy what you know applies well here – a reason why Fidelity's funds are big Tesla investors now, even though the shares are too expensive to fit Lynch's value approach.
A "persistent reassessment" for Facebook stock
Facebook is the easier case, so let's talk about it first.
Two themes are consistent for almost 20 years. I've Covered Online Advertising: Media companies always exaggerate how well they use data to target ads, and pounds, European regulators and politicians are always more upset by targeting than consumers.  Therefore, there was no mass error from Facebook, among other things in communicating dubious privacy practices. Instead, the company reported that Facebook's average daily user numbers were up 9% from a year ago. Business revenue increased by 33% to $ 16.9 billion. As RBC Capital Markets analyst Mark Mahaney said, 2.7 billion users can't go wrong
"We could be in a period of sustained re-rating as the worst Facebook fear seems to have failed," Mahaney said. in a note to clients.
Why not big problems on Facebook? Simple. How many do you know who joined Instagram (a Facebook property) because Facebook did not stop the Russians from posting false news reports in 2016? Or even who ends up Facebook, the flagship that gets all the bad publicity? I don't know anything, confirming what the numbers tell me (or vice versa).
The press makes a large part of Tesla CEO Elon Musk, and stops Facebook, but the statistics confirm the sensuous impression that most find Facebook useful. and do not disturb advertisers buying data about them. (I looked up my own Facebook file and was unused – some advertisers ask me, maybe because my profile claims I am 113 years, especially to drill advertisers to death).
Perhaps the most eloquent rebuttal to the argument that Facebook is threatened by threatening privacy regulations comes from Europe, where EU regulators introduced rules that allow consumers to know (and limit) what information is being gathered about them in May last year. This should stunt Facebook's growth as advertisers refused to buy less targeted ads. European advertising revenue rose 28% in the quarter.
This perseverance for both users and ad buyers is why Facebook offers little to worry about before, and unless a democratic administration by 2021 decides to impose rules on ad targeting that go beyond Europe. Tesla hits its own bending point
Tesla is a tougher case for investors, but not much.
The company made a net profit for the second time in the quarter, and Musk predicted that the company will be profitable every quarter in the future.
The biggest buy signal is that Tesla will start selling its Model SU small SUV next year. Bears slowed down the company slowly capital expenditures, suggesting that it means Tesla is cash-tight. Tesla has bonds maturing in March to repay, but hard looking at the numbers, as one I did, recognizing that now profitability means that Tesla's funding opportunities are quite simple. With profit now, it will probably need to increase slightly closer to the low end of $ 5 billion to $ 10 billion as its long-term expansion plans require – and profitability puts them in a bad position to do so. It will soon end the long argument about whether the debt market will cut Tesla off.
No doubt that when Musk makes predictions, especially about the timing of milestones, the story says it is best to take them with pounds of salt. Departure to CFO Deepak Anuja, announced Wednesday, at least gives a talk point.
But Lynchian analysts recognize obvious things that should make them feel good about Tesla. These include: The market for small SUVs is much larger than that of sedans, and Tesla believes it can sell 700,000 to 800,000 Model 3s a year worldwide if there is no recession.
Most of all, battery costs for electric cars still cost and electric cars are cheaper than combustion-powered vehicles once between 2022 and 2027.
So now the company comes to the largest markets for its products, it is profitable, its liquidity problems are fading and the biggest cost neck is evaporation. It's not a recipe for decelerating much, even in Tesla's size. If Y excludes model 3 and EV is cheaper than regular cars in five or six years, Tesla wins big. Although it crushes up small things along the way.
Lynch was known for his story of buying the company that made the Egg's tights because his wife told him how good the product was, and Tesla gets some of the same buzz. In my case, my college friend Al, a Westchester County physician and car nut who rescued to buy a new Mazda RX-7 at 17, got his first trip in a friend's model 3 in December. In a moment my Audi A4 owner's friend's skepticism about paying more for a Tesla disappeared. And soon he doesn't need to.
Even from a guy who bought his red sports car 40 years before the late Middle Ages, there is a stock tip that has bones. Or eggs.