Short Recommendations Issued for Apple Inc. (NASDAQ:AAPL), Tesla Motors Inc (NASDAQ:TSLA), and Simon Property Group Inc (NYSE:SPG)

Stock Traders Daily has issued strong sell / short recommendations on three companies; those companies are Apple Inc. (NASDAQ:AAPL), Tesla Motors Inc (NASDAQ:TSLA), and Simon Property Group Inc (NYSE:SPG).  The short recommendations are being made based on three underlying criteria: macroeconomic conditions, valuation, and technical resistance.

Our macroeconomic assessments are the same across the board.  The Investment Rate, which is our proprietary macroeconomic model, tells us that the demand for equities will decline materially as this year continues and additional selling pressure will come from margin debt reduction adding to downside pressure in the stock market in the year ahead.  Therefore, not only will demand for equities decline according to what The Investment Rate says, but added selling pressure will cause the multiple contractions that would already be realized to be more severe.

In environments like that valuation starts to matter, and in each one of these strong sell recommendations valuation is a concern. 

  • For Apple, trailing 12 month quarterly growth rates are likely to be down by 6%, more than they fell in 2013, and annual growth is expected to be just above 2%.  The PE multiple levied on Apple at this time does not look ridiculous, but when you compare it to the growth rate that exists now, and we expect stagnant growth going forward too, today's multiple absolutely looks rich.
  • Tesla is a difficult stock to properly value, we cannot use earnings were peg ratios, but instead we can look at revenue.  Almost everyone already knows that Tesla doesn't currently generate much revenue at all, yet its market cap is $34 Billion.  After the new product launch we can estimate that revenue a year from now is likely to be about $11 Billion, but that's not today's revenue, that comes a year from now, but the stock still trades at three times that future revenue figure.  Immediately, Tesla looks expensive, and most analysts would agree.
  • Simon property group also is expensive relative to its growth rate, but the problem here is that its growth rate, although recently solid, is expected to start to decline, but we would not be surprised if earnings growth declines as aggressively as we saw at the beginning of 2015, when earnings growth was actually negative.  Declining growth rates increase valuation risk and as a result we believe that multiple contractions are likely here as well.

In each of these three names that theme is the same, although slightly different for each one.  High relative valuation levels present the risk for multiple contractions and in the face of the macroeconomic environment that we have identified we believe that these multiple contractions will come and be more severe than what most analysts expect.

Each one of the stocks is also testing relative levels of longer-term resistance, so the timing of these strong sell recommendations is also predicated on those tests of resistance.

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