Tesla Bears, Watch Out. How the Stock Could Rise Like Apple’s Did.

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Anyone bearish on Tesla stock should consider this: A lot of portfolio managers are underweight

Tesla

stock. Correcting that situation could generate buying and drive shares higher.

Tuesday,

Wells Fargo

equity strategist Christopher Harvey suggested in a research report that it was time to rethink the underweighting of Tesla, noting that so far in 2022, shunning the stock has worked. Inflation, rising interest rates, and the war in Ukraine have all damped investor enthusiasm for high-growth stocks, including Tesla.

The impact of the factors is easy to see. The Russell 1000 Value Index has outperformed the Russell 1000 Growth Index by more than 12 percentage points so far in 2022. Tesla stock, for its part, is down about 21%, while the

S&P 500
and

Dow Jones Industrial Average
have both lost 10%.

But now, the conflict in Ukraine has driven up oil prices. “The Europeans need to reduce reliance on Russian energy. This transition will be neither quick nor easy one, likely keeping a bid to oil prices,” wrote the analyst. “Tesla may be a winner in all of this.”

There are two ways that can help Tesla stock. For starters, it might slow the economy, easing pressure on the Federal Reserve to raise interest rates. Stable rates would remove one overhang for growth stocks.

Next, Harvey believes, high oil prices can persist. That is good for electric vehicle adoption. High oil prices lead to high gasoline prices, widening the gap between the cost of operating an electric vehicle, the kind Tesla makes, and a traditional car.

Potential positives combined with portfolio weightings can become a problem for bears. “We remind investors [Tesla] is a major underweight across many institutional accounts,” Harvey wrote. “It is beginning to feel like the

Apple

(AAPL) underweight we started highlighting 2 [to] 3 years ago.”

Apple

stock was roughly $50 when he highlighted that portfolio managers were holding less of the stock than its weighting in the indexes used to track their performance. The stock was trading for about 14 times estimated per-share earnings. Now Apple stock is at almost $160 and trades for more than 25 times estimated 2022 earnings.

There is no guarantee, of course, that portfolio managers will suddenly flock back to Tesla stock while fighting continues in Europe. And Tesla stock is more expensive than Apple. Tesla shares trade for about 78 times estimated 2022 earnings.

Still, what Harvey is pointing out about Tesla is worth considering. And Tesla shares should find a floor somewhere. Coming into Wednesday trading, shares were off more than 33% from their November 52-week high of more than $1,243 a share.

Tesla stock was up 2.5% in premarket trading Wednesday, though a wholesale re-evaluation of portfolio weightings isn’t the most likely cause. The market was set to open higher. S&P and Dow futures were both up more than 1.4%.

Write to Al Root at [email protected]