Why Did a Major Fund Manager Dump Tesla's Surging Stock and Buy Boeing?

Despite the long run of gains in the share price of Tesla, and potential for further growth, the hedge fund Coatue Management has offloaded a portion of its investments in the electric car maker.

At the same time, Coatue, which is a technology-focused fund, bought a number of shares in aerospace giant Boeing.

Tesla shares have been on a prolonged rip in the U.S. stock market, with the company seeing a 760 percent bump in its price since this time last year. Not even coronavirus-related shutdowns of its factories could dampen the rally.

CEO Elon Musk has continued to cash in and is now, according to Forbes, the world's fifth-richest person. The stock bump increased his wealth by around $7 billion.

The stock jumped further on Monday after analysts re-figured a 12-month price target to $1,900, an upgrade from its current value of $1,835.64.

Tesla's shareholders have received a bumper payday too due to the seemingly unstoppable success.

Meanwhile, Boeing's stock price has floundered over the last year. Caught in the crosshairs of both an investigation into its faulty 737 MAX jet, which was forced to halt production, and the coronavirus shock to the airline industry, the stock has tanked.

Around the end of the first quarter, it was more than 70 percent lower than at this time last year. So, why would a fund such as Coatue Management buy Boeing and dump Tesla?

In its second-quarter SEC filings, the fund reported a total value of $11.4 billion. While it bought Boeing and sold Tesla, Coatue also boosted stakes in Walt Disney, Zoom, and Uber.

Its total Tesla holdings were valued at $334.6 million as of June 30, 2020, having sold 42 percent of its position. Its previous position at the end of March was valued at $280.22 million.

In the first quarter, Coatue had no Boeing holdings. But by the end of the second quarter, it had a position valued at just over $504 million.

These bets may reflect some analysts' feeling that Tesla has reached its peak. Even Musk said in May that the price of Tesla stock is "too high."

In a note dated 23 July, J.P. Morgan's Head of U.S. Autos Research Ryan Brinkman said: "Despite the modestly better 2Q, TSLA shares still highly overvalued, as evidenced by comparisons to industry leaders Toyota & VW which are together valued less than Tesla."

The note also said: "Although both technology and execution risk seem substantially less than was once feared, expansion into higher volume segments with lower price points seems fraught with greater risk relative to demand, execution, and competition."

Tesla pushing into China could cause problems as diplomacy between the world's first and second-largest economies heats up and President Donald Trump offers tax breaks to U.S. companies pulling out of the Asian powerhouse. It has the potential to grab market share from other electric vehicle makers.

Another J.P. Morgan note, dated 30 July, said of Boeing: "Boeing should continue burning cash into early 2021 but mgmt expects improvement in 2H20 from the ~$10b burned in 1H20."

The note also points to the fact that the company had shrunk itself even before the pandemic struck the airline industry.

In conclusion, it rates the stock as a neutral prospect, saying: "While we expect Boeing to emerge from the 737 MAX crisis and begin generating cash in 2021, the
severity of the impact from COVID-19 on aircraft demand is unclear and we await more confidence in the path ahead."

In other words, analysts predict Boeing's prospects may improve in the long-term, and the stock has room to grow, while some see Tesla as overvalued.

"Tesla exceeded everyone's expectations this year, and some people sold far too early," Kevin Cook, senior stock strategist at Zacks Investment Research, told Newsweek.

"It became apparent that the MAX crisis was not going to kill Boeing, but the pandemic did because air travel ceased.

"Many managers plugged in the numbers and it became an incredible value stock under $150 for managers that are looking ahead three to five years.

"We'll get through this pandemic. Air travel will return at some point, and Boeing is a leading player in aviation and aerospace."

Newsweek has contacted Coatue Management for comment.