With the S&P 500 falling into correction territory, a lot of terrific US stocks are suffering from volatility right now. But while most investors are busy panic-selling to protect their downside, I’m hunting for bargains to improve my potential upside.
Corrections have historically been some of the best windows of opportunity to snap up shares at a discount. And just looking at the track record of some of the largest companies in the index like Tesla (NASDAQ:TSLA), the potential gains from capitalising on volatility can be enormous.
In fact, between the end of the 2022 market correction and the start of this one, Tesla shares erupted by almost 250%!
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Unsurprising volatility
Since this latest correction kicked off in mid-February, Tesla shares have plummeted by just over 33%. And this was just a continuation of its downward trajectory that started back in December. In total, from its latest peak, the electric vehicle (EV) manufacturer has seen its market-cap cut in half.
As troublesome as this seems, it’s worth pointing out that Tesla’s valuation has only reversed back to October levels. And given the company’s pretty lofty valuation of 87 times forward earnings even after shares have tumbled, such volatility shouldn’t have been a major surprise.
But is this sell-off just part of the general market panic, or is there another piece to this puzzle?
Incoming slowdown
A tactic that many investors have started using to gauge Tesla’s performance each quarter ahead of its earnings report is to look at the number of Tesla car registrations each month. And lately, the company seems to be in a bit of hot water.
In February, Tesla registrations fell by 66% in Australia, 49% in China, 24% in the Netherlands, 42% in Sweden, 45% in France, 55% in Italy, and 53% in Portugal. It’s a similar story in Denmark, Norway and Spain.
Only the UK seems to be an outlier, with registrations up by 21%, but that’s still slower than the 42% growth of EV sales in the country.
Some analysts are putting the blame on Elon Musk’s controversial jump into right-wing politics. However, I think this may also simply be a result of competition.
Up until recently, Tesla’s enjoyed a bit of a monopoly within the EV space, with very few competitors to worry about. However, with larger auto manufacturers finally catching up with their own EV offerings, consumers in Europe, China, and Australia are seemingly exploring their options.
And with fewer car sales, Tesla’s impressive growth story might now be in jeopardy.
Is this a falling knife?
Despite the headwinds, Tesla still shows a lot of promise. Its battery technology remains among of the best in the world, and management’s been investing heavily into technologies like AI and robotaxis that could re-spark growth if vehicle registrations continue to slow.
Having said that, I think there are other opportunities to consider among US stocks at cheaper valuations with similar growth prospects. That’s why I’m not rushing to buy Tesla shares right now but rather looking at other American companies in my portfolio that have also taken a recent hit.
