I always say stay away from battlegrounds. Owning positive stories with great fundamentals is hard enough. But a battleground? One where you are met with enfilading fire and interstitial machine gun madness, count me out.
Sometimes though, like in this market, where the animal spirits - bullish animal spirits - can bowl you over, sometimes you have to take a stand, and that's exactly what I've been doing with Tesla (TSLA) and what I've gone back and forth on with Netflix (NFLX) , the two biggest hornets' nests of our generation.
That's why tonight I want to talk about what converted me to the Tesla bull camp and why I am still waffling on Netflix even as I championed it for years when the stock was lower and the competition not as fierce.
All my career I have been fascinated by companies with vociferous bulls and bears, if only because they can be so entertaining. Three things distinguish these stocks from regular run of the mill equities.
First, they are cultish, meaning that there are people who love the product, not the earnings and the product transcends simple analysis. You can't put a price to earnings ratio on cool, on but you might buy cool and therefore want to buy the stock. That had been my stance for years on Tesla. For example: if you like it you might want to buy the stock but be careful of the balance sheet.
Which brings me to the second issue these battlegrounds have: the financials. The reallyVerdun-like slugfests tend to have terrible balance sheets, ones that can't be fixed by simple operating earnings and instead need genuine manna from heaven to cure themselves of the concerns.
Finally, they tend to have charismatic leaders. I have had the privilege of meeting Reed Hastings and he's charismatic as all get out, just the genuine item, someone who is inside my head when he sends me what to watch on Netflix at night. Of course he sends millions of others the same emails. But I think they come from him.
No one, though, is more charismatic than Elon Musk. No one. He's about, as they say in law school and nowhere else, about as sui generis as you can get. He's a walking charisma machine, alternately entertaining and fun-loving and critical to the point of scathing, like someone else I know, yours truly. Sometimes I think he gives me a run for my money as the most sincerely insincere man in North America, other times he's just a worldwide true believer.
So let's tackle Tesla first, and put it through the prism of the three concerns I just outlined.
Let's start with what made me go bullish on Tesla after being an agnostic skeptic for all these years.
About three months ago my eldest daughter got a chance to drive a Model 3 from Oregon to San Francisco. She had just sold her beat-up used Ford and had always been a definitive non-car person. I know she had trepidation about the battery and the 600-mile trip.
But within the first 100 miles she called me - that in itself exciting - to tell me how much she loved being behind the wheel of the darned thing. She's never ever expressed even a whit of interest in a vehicle and now she's bragging about it? I told her that I had driven one years ago and loved it but never thought much beyond that. She had two words for me: "buy one." She ticked down all the features she liked, especially the wide screen, but nothing mattered more to her than the flatulence button, which she thought was hysterical.
About two months later and I, too, found myself on the west coast, with my wife and a fabulous husband-and-wife couple, and they could not wait to put me in a Model X. My wife, Lisa, loves cars and she immediately was smitten. I have to admit I loved the whimsical nature and the handling. The gull wings were cool. The drive fantastic.
I felt the tug.
Then the company introduced the pick-up truck, which I thought was ugly as all get out, and some actor threw a rock at its unbreakable window and it cracked. I figured, okay, so much for that. Then we see the demand and it's off the charts. That stunned me.
I decided then and there, that was it, I'm all in -- at least for the product.
How about the balance sheet, though? The bears are always telling me about how bad the balance sheet is.
But then I checked in with one of the most skeptical CFOs in the world and you know what he said? The company could raise two billion dollars in a heartbeat.
Plus even the bears recognize that the company is about to have an earnings breakout, perhaps as soon as 2020.
Remaining worry? That solar panel acquisition. Well, guess what? My wife sent me an article today about how their solar roof tiles are now as cheap as the stupid kind and they have a guarantee. She wants them. We will get them.
Which left me with the outside personality of its fearless leader, Elon Musk. I never mind flamboyant CEOs, but I have to admit I hated the way he tweeted like mad and taunted both the analysts, and more importantly, the SEC. All of that ended though when he agreed as part of some weirdo SEC ruling to stop the incendiary tweeting and, on the last conference call he revealed his true rigor without the sardonic quips. That made me realize that he will have no problem negotiating with either the Chinese government for his Gigafactory built in record time or the coming gargantuan German factory for that matter.
So, cult product? Check. Balance sheet? Check. Leader? Check.
How about Netflix? This weekend like, it seems, almost everyone else in America, we watched "The Irishman". It took two installments. I didn't' love it. But I watched it. Great acting. No commercials. The usual. Then though, while perusing, I stopped on "The Spy" with Sacha Baron Cohen. Binge. Check! Netflix makes some of the greatest product on Earth. Never wavered on that.
Balance Sheet? This one's become tough. Are there too many streaming offerings? Content costs a fortune these days. This one worries me. I know there's a more-the-merrier approach to the CEO, he likes competition. However, if there is a war over product, if it just keeps escalating like sports, then I think Netflix will not be a good stock, just a good company.
Finally there's the leader. I think Reed Hastings is a genius. He has so much more figured out than you realize. Once before I interviewed him, I wanted to test the company's customer service. I set the alarm for 2:30 West Coast time on the eve of my San Francisco interview, and I called asking for help finding the best movies about the Soviets march to Berlin during World War II. Without skipping a beat, the terrific assistant recommended a boffo film, the Fall of Berlin among others. It was fabulous. He runs an amazing ship.
All that said, unlike Tesla, which, ostensibly has a terrible balance sheet, I am more concerned about that of Netflix because of the cost of the product. I can't be convinced here without knowing about an acceleration in sign-ups and right now the street is split between increasing and decreasing domestic sub counts. Just too hard for this guy.
I could speak an hour about these two companies and cult stocks. Suffice it to say that while I am skeptical about Netflix, when it comes to Tesla? Call me a true believer.