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September 22, 2020

When we got into this stock we fully expected a lot of twists and turns. We didn’t expect the current drama.


Nikola (NKLA) Moves To Hold

When we got into Nikola (NKLA) we fully expected a lot of twists and turns. We didn’t expect the current drama. That said, it’s not all that surprising given the high-profile nature of the company and the founder, and his tendency to shoot from the hip.

The company is taking steps to reduce distractions and re-focus on the core story of Nikola’s hydrogen and electric vehicles. On Sunday Nikola’s founder and executive chairman, Trevor Milton, resigned. The board accepted, and named board member Stephen Girsky as Mr. Milton’s successor. Mr. Girsky was a former vice chairman of General Motors’ (GM) board and played an instrumental role in cementing the recent partnership with GM.

While the loss of Mr. Milton might help reduce headlines in the short-term it could change the story, depending on how management evolves. Like a lot of early-stage, innovative companies his presence was largely responsible for getting Nikola to where it is today. Part of me thinks this is largely about optics, and that he could return to the company once the dust settles. In the meantime, what we really want to hear is the SEC and Department of Justice saying something along the lines of, “nothing to see here folks.” Or maybe, that Nikola gets a slap on the wrist for speaking too freely in the lead-up to the IPO.

In any event, what we know now is that the stock is down, but provided that partners don’t walk away, this is a temporary, albeit somewhat large, speed bump.

Taking it all in, aggressive investors may wish to average down here. The news is bad and the story is still (relatively) good. So that strategy could make sense.

More conservative investors may wish to just sit pat and see what comes next. That’s the strategy I’m advising. We have a half-sized position, which to me feels like plenty right now. Even if the stock surges 50% or so from here, the long-term potential is still significant enough that we can buy our second half when the climate is more positive.

If you don’t have a position yet, and you can stomach the drama, this is a compelling time to start a position, buying up to a half-sized position (i.e. half the dollar amount you would normally allocate to one of our stocks).

That’s it for now. I’m sure there will be more to come before long! Nikola (NKLA) moves to HOLD.