The stock market has a difficult year. Rising interest rates and rising global tensions have caused the biggest losses since the sale of COVID-19 in 2020. The S&P 500 broadly followed index has lost 16.8% year-on-year, but the tech-centric Nasdaq-100 is getting worse, down by about 26%.
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That puts the technology sector in a bear market full of air.
Long-term investors cannot control when the stock market will recover, but they can also control which companies they buy in preparation for improved conditions. The key question is: If things get better (and will eventually get better), where can investors look first?
They may turn to the future
Lower markets are a great opportunity to buy a dip in companies that work for the construction of future technologies. The automotive industry, for example, is in the midst of a major revolution in decades, which could see electric vehicles (EVs) become the majority of sales by 2050, according to some estimates.
That makes EV industry leader Tesla (TSLA -9.71%) an attractive buy right now. Its stock has declined 42.5% from the all-time high, despite strong investor enthusiasm related to the recently announced stock market.
Tesla leads the pack in sales of electric vehicles, accounting for 70% of all EVs sold in the U.S. during 2021. Demand for EVs could be as high as $ 1 trillion a year by 2030, giving Tesla a major growth path. But it is interesting that the market value for private cars could exceed $ 2.1 trillion by 2030 (for all types of vehicles, not just EVs), which could accelerate the demand for Tesla cars as a company and leader in this technology.
Simply put, the need for self-driving cars could supply the demand for electric vehicles in a big way.
Tesla is a powerful financial institution
Profitability is one of the most important things investors look for in companies during difficult times. Profit organizations can survive without the need to raise money, which can be difficult to find when markets are volatile.
Tesla delivered more than 1.06 million vehicles to its customers in the last 12 months, generating $ 62.1 billion in the process. Increases in both of these figures in recent years have allowed the company to achieve a growing level of scale, where the fixed cost becomes a small percentage of the company's total revenue, opening the way for rising profits.
This trend is most evident in Tesla's gross margin, which increased to 32.9% in the first quarter of 2022, from 26.5% in the previous quarter. These results have reached the bottom line (earnings) in a very large way.
Reducing stock, expanding business
In March, Tesla announced its intention to split the stock. It has not yet confirmed the dividend rate or the starting date, but the move is designed to make Tesla shares more attractive to small investors.
The stock is currently trading at about $ 715 per share, which may not work for low-income investors. By completing a 5 to 1 stock split (for example), it will increase the number of shares by five times, while reducing Tesla to $ 143 per share - making it more accessible.
Although stock segregation often gets a positive response from investors, it is a good thing and does not add to the internal profits of the primary company.
For real long-term growth, it is important to focus on Tesla's business, which continues to grow. The company recently added two new gigafels in Berlin, Germany, and Austin, Texas, which could bring an annual production capacity to more than 2 million vehicles each year.
Although cars are the main drivers of Tesla's business, they also add value to the vertical as well as insurance, collision centers, and sales.
But solar power generation and battery storage could play a significant role in the company's future growth. By Q1 2022, storage shipments have grown rapidly by 90 percent, and Tesla is increasing production in a dedicated area just to meet demand. Solar shipments dropped during the quarter due to supply problems, but still a year to go.
The best rewards will come in the long run, but if you look at Tesla’s strong growth and popularity among consumers and investors alike, it makes sense to think that Tesla stocks could lead when the wider market keeps them out of the current downturn.
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