In a year that has seen high-flying technology stocks with lofty valuations battered, $Tesla (TSLA.US)$ shares have emerged as an unlikely rival to $Apple (AAPL.US)$.
Of the 5 biggest US companies by market value, Tesla's shares are by far the most expensive, yet they're the only ones whose performance comes close to Apple's, which has been a rare bright spot for investors in the sector this year. Tesla is down 22 per cent this year; Apple has fallen 15 per cent. By contrast, Microsoft Corp., Alphabet Inc and Amazon.com Inc have all declined 29 per cent or more, roughly the same as the Nasdaq 100 Index.
On the surface, Tesla appears to be the polar opposite of Apple. The electric-vehicle maker is big on revenue growth but shorter on profits, and several years ago, it was burning so much cash it was on the brink of bankruptcy. Apple's expansion, by contrast, has slowed to a crawl, yet it has become a profit juggernaut with an expected US$100 billion in net income this fiscal year.
"The correlation between the 2 is surprising, but when you consider that Tesla is the only game in town for electric vehicles, that makes it unique," said Eric Clark, portfolio manager at Accuvest Global Advisors. "Other big tech names are in software or cloud, which are more competitive markets, and I think people underestimate the appeal of a pure play in a particular thematic."
Apple and Tesla are similar in that they have huge market values – US$2.4 trillion and US$862 billion, respectively – which means they benefit from flows into funds that track major indexes. They're also less tied to the business cycle than other tech-related stocks, said Wiley Angell, chief market strategist at Ziegler Capital Management.
"It means there's a little less recession fear and a little less fear about what the Fed is doing," said Angell, whose firm holds shares of both Apple and Tesla. "The electric-vehicle story is still in the early innings, and Apple gets a huge amount of its revenue from subscriptions or a recurring base, which means it's more stable."
Those attributes – and the cult followings that their products enjoy – have made both stocks among the most popular for retail traders. Apple and Tesla were by far the most purchased stocks by mom-and-pop investors over the past 5 days, Vanda Research said on Sep 21.
Apple's immense cash flows and commitment to return money to shareholders via dividends and buybacks have made it a favourite for investors seeking to play defence amid concerns that the Federal Reserve's efforts to tame inflation will push the US economy into recession. Meanwhile, some of the volatility in Tesla this year is related to CEO Elon Musk's decision to buy Twitter Inc, a deal he is trying to get out of.
Apple has been rewarded with a premium valuation relative to the Nasdaq 100 that sits well above the iPhone maker's average over the past decade, according to data compiled by Bloomberg. Yet at 23 times profit projected over the next 12 months, it's still less than half the price of Tesla.
In a market where investors are avoiding risk, being relatively insulated from economic cycles, thanks to a loyal customer base, makes Apple and Tesla particularly attractive right now, said Ziegler Capital's Angell.
"The reason they've outperformed is the reason we want to continue to own them," he said.