Tesla is set to dominate the electric vehicle (EV) market for the next decade, and it is very possible that it will become a $1-trillion company.
This is the view of Vestact portfolio manager Byron Lotter, who remains bullish on tech stocks follow their strong rally over the last few months.
Speaking to CNBC Africa, Lotter said their strategy to pick companies to invest in follows a simple approach:
- A very solid moat around the business.
- A strong balance sheet.
- Cash generative.
He said most of the large tech companies tick these boxes, which is why Vestact has been investing in them.
After the dot-com bubble and subsequent market crash in the late nineties, tech stocks were seen as speculative, with high valuations driven by momentum.
This has, however, changed with the current crop of companies like Amazon, Apple, Microsoft, Google, and Facebook – all of which are making a lot of money.
These companies also have “economic moats” around them, which allow them to maintain their competitive advantage and protect their long-term profits and market share.
This means these companies have become a safe haven for many investors during the current period of uncertainty.
Vestact’s strategy to invest heavily in these tech stocks has paid off handsomely, with the company’s portfolio up by 14% for the year despite the economic downturn.
Behind Tesla’s share price increase
One of Vestact’s favourite companies is Tesla, whose share price has seen a meteoric rise over the past year.
Many investors have questioned this strong share price growth, arguing the company’s fundamentals and future growth do not justify its valuation.
Lotter disagrees, saying that in the long-term, Tesla has the potential to be the next Apple.
“I think they are going to corner the EV market in the next decade just like Apple did with smartphones because of their first-mover advantage and brand quality,” he said.
He added that Tesla’s energy utilities business is also under-estimated.
“Maybe on a fundamentals basis the valuation does not make sense, but that can be said for many other companies like Amazon in the 2000s,” he said.
Lotter said it is very possible for Tesla to one day become a $1-trillion business.