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The Best Revolutionary Stocks: Tesla (TSLA)

Yes, as many of you have anticipated, Tesla (TSLA) is the eighth in my series of “10 Revolutionary Stocks.”

Who Killed the Electric Car?

The First Electric Car

Eighth Revolutionary Stock


The car in the picture below is a 1912 Woods Electric Brougham, a top-of-the-line, pollution-free automobile that had a maximum speed of 20 mph and a range of 100 miles before recharging was necessary. A great city car in its time, the Woods Electric started easily in any weather, it was quiet, and there were no gears to shift. Also, you could wear your hat inside!


This Woods Electric belongs to the Owl’s Head Transportation Museum in Owl’s Head, Maine, where I saw it on a Labor Day weekend trip with my wife.

The Woods Electric may look quaint today, but it was state-of-the art in 1912, after several decades in which electric cars ruled the road; in fact, until 1908, there were more electric cars in the U.S. than gasoline-powered ones.

So who killed the electric car? A guy named Henry Ford, for one, who made great use of the assembly line, while churning out more than 15 million gasoline-powered Model Ts between 1908 and 1927,

The Owl’s Head Museum has one of those, of course, and my wife and I were lucky enough to get a ride in it.


This Ford Model T Roadster, which was made just one year after that Woods Electric, boasted 20 horsepower, which pushed it to a top speed of 45 mph, more than twice as fast as the Woods Electric.

Better yet, the Model T was cheap!

Priced at $525 in 1913, the car cost the equivalent of $12,388 today. (Today that will get you a Nissan Versa or a Chevrolet Spark, but you’ll get just two doors instead of the Model T’s four, and there’s no convertible option.)

By comparison, the Woods Electric was expensive! It cost a whopping $3,000 in 1912, which is the equivalent of $70,786 today (and which will get you the Audi A8, the BMW 740, the Cadillac Escalade, the Chevrolet Corvette, the Jaguar XJ, the Lexus LS 460, or the Mercedes E-Class.)

As we all know, price often trumps all, and there’s no doubt that the Model T’s low price was the biggest reason for Ford’s success. Coupled with that was the growing ability of Americas to effectively get oil from the ground (and thus fuel these cars) and the growth of America’s road system, which increased demand for long-range travel. And a century later, Ford is still around, which is impressive!

(Note: you couldn’t actually buy stock in Ford until 1956. Henry Ford preferred control to debt, but after his death, the Ford Foundation took the company public in a record-size IPO.)

Ford, of course, is a very mature company today. It pays a nice dividend of 2.3%, but revenues peaked six years ago, and the stock peaked 13 years ago! Lastly, the company is loaded with debt today, something Henry wouldn’t like at all.

And now the world is changing again! While most cars of the past century have been powered by gasoline-fueled internal combustion engines, today the electric car’s time is rolling around again. In fact, it’s possible that history will show that the Cadillac Escalade or the Mercedes E-Class marked the pinnacle of the age of gasoline-powered car!

The disrupter this time, however, is not some low-priced econobox. Neither the Nissan Leaf nor the Chevy Volt (technically not a pure electric car) is thrilling anybody. In fact, both cars saw big price cuts recently in an effort to increase appeal. (And it worked; both cars achieved record sales numbers in August.)

No, the disrupter this time is Tesla Motors, whose Model S, which (coincidentally) costs the same as those high-end gasoline-powered cars, and in trendsetting California has been outselling the top offerings from Audi, Jaguar, Lexus, Land Rover, Lincoln, Porsche and Volvo (but not yet BMW and Mercedes).

Note: I originally recommended Tesla’s stock (TSLA) to the readers of Cabot Stock of the Month back in December 2011, before the Model S was even a reality. Readers who took my advice back then are looking at profits of well over 450% today, and I keep them updated on Tesla’s progress every week. Plus I recommend another high-potential stock every month! If you’d like to join them, click here.

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Yes, as many of you have anticipated, Tesla (TSLA) is the eighth in my series of “10 Revolutionary Stocks.” If you’re a new reader, you can—and should— read my original article on revolutionary stocks first.

Today I won’t spend a lot of time discussing Tesla (the company) or Teslas (the cars), because a lot of the facts are increasingly well known. But I will spend time justifying the stock’s inclusion here today, even though it’s already had a big advance.


It’s run by Elon Musk, who made his first fortune in PayPal, and in addition to Tesla, runs SpaceX, which makes rockets that service the International Space Station, among other things.

The company’s located in Palo Alto, California, where a lot of really smart, motivated people are found, not in Detroit. California is where the cars are made too.

Tesla’s business model is modeled on that practiced by successful high-tech companies: make a small number of expensive products for rich pioneers (the original Tesla Roadster); use the profits from them to make more products at a lower price for a second wave of affluent early adopters (the Model S); and use the profits from them to make lots more cars at a mass market price point, etc.

Musk’s goal is not simply to sell electric cars; Musk’s goal is get the world to transition from its polluting fossil fuel transportation infrastructure to one based on highly efficient battery-powered transportation.

To achieve that vision, Tesla is building a nationwide network of charging stations that will provide free charging—forever—to Tesla owners. When possible, these are solar-powered, and when possible, they provide electricity to the grid, generating revenue. Also rolling out are automated battery swaps—that can be achieved faster than a gasoline fill-up.

Furthermore, Tesla is bypassing the entrenched dealership sales model, not least because the traditional dealer adds 9% to the price of a car, and leaves many buyers unhappy with the experience. To buy a Tesla, you simply pay list price, and that’s that. That’s a revolutionary change I appreciated when I ordered mine—which I expect to receive next weekend.

Finally, Tesla has not spent a dime on traditional advertising. So far, word of mouth has done the job very well, and the backlog of orders is two to three months,


The five-seat Model S sedan not only received the highest grade ever from stodgy old Consumer Reports (99 out of 100), it also received the highest grade ever in crash tests run by the National Highway Traffic Safety Administration.

And, because it’s a truly remarkable driving machine, the Model S was named 2013 Car of the Year by Motor Trend and 2013 Automobile of the Year by Automobile magazine.

Most Model S sales to date have been in the U.S., but sales in Europe (where gasoline prices are far higher) and China are just beginning and will no doubt be a big contributor going forward.

For the record, analysts are estimating that Tesla will earn $0.55 per share this year and $1.69 per share next year. That’s a great positive trend.



TSLA’s history is fairly simple. From its June 2010 IPO at 17 until March of this year, when it built a base at 38, TSLA was in a modest uptrend, characterized by normal ebbs and flow. It was nobody’s darling; there was too much uncertainty.

But then the good news started coming, notably the company’s March 31 announcement that sales were running ahead of expectations and then the May 8 earnings report that wowed analysts. Both news items sparked new waves of buying, kicking off a powerful uptrend that has run steadily right up until the stock hit new highs last week!

So what comes next?

Well, some people (those with little experience at chart-reading) look at a stock that’s up this much and say, “It’s too high,” not even realizing that many people were saying the same thing back in June when the stock hit 100.

Wiser heads remember the chart patterns of other revolutionary stocks that were big winners and know that it can certainly happen again.

So let’s look at it this way. TSLA, just over three years old is up 882%. Is its run possibly over?


On the other hand:


Microsoft (MSFT) gained 325% in its first three years, and 581% in the next three years.

Cisco Systems (CSCO) gained 1,275% in its first three years, and 310% in the next three years.

Home Depot (HD) gained 1,586% in its first three years, and 217% in the next three years.

eBay (EBAY) gained 479% in its first three years and 318% in the next three years.

And, of course, all of these stocks went on to greater long-term gains. Revolutions take time.

Now, the forces that bring such great performance from stocks are interesting.

In addition to the measurable fundamental aspects like revenue growth, sales growth and price/earnings ratios, there’s a critical factor known as public perception, which is often easier for psychologists to understand than for accountants. In short, when perceptions of a young company, and a revolutionary product or service (like those above) and a strong stock improve (all at the same time), it reinforces results in every one of those areas.

Today, more and more people are learning about Tesla’s great, revolutionary cars, so more and more people are learning about Tesla, the great young company, so more and more people are learning about—and developing a positive opinion about the future of—TSLA, the great young hot stock, so more and more people are buying the cars! Being part of a successful movement feels good!

Which is not to say that TSLA (the stock) will go up forever. None of these ten revolutionary stocks should be expected to do that. But it does mean that there exists here extraordinary profit potential, which simply does not exist in a well-known mature stock, whether it’s Johnson & Johnson or Microsoft or Chesapeake Energy.

Note: All 10 of these revolutionary stocks were selected on July 12, and I’ve written about one nearly every week since, in alphabetical order, so there is no particular timeliness in this recommendation. (TSLA closed at 130 on July 12).

If you want timeliness, check out my Cabot Stock of the Month, where I update you every week on every recommendation. For details, click here.

The weeks ahead will bring two more revolutionary stocks like TSLA, and I look forward to presenting them to you.

Yours in pursuit of wisdom and wealth,

Timothy Lutts
Editor of Cabot Stock of the Month

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Best Revolutionary Stocks – 2013:

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