Tesla Motors Inc’s (NASDAQ:TSLA) recent offer to buy SolarCity Corp (NASDAQ:SCTY) certainly caught the market by surprise — and the view was completely different depending on which side of the river you were standing on. Namely, TSLA stock plummeted more than 10% on Wednesday, but SCTY stock soared more than 5%.
However, many investors still are deciding what to make of the proposal — and thus, how to deal with TSLA and SCTY.
Here’s a look at three scenarios that could play out in a potential Tesla-SolarCity tie-up, the argument for each and three basic trades to exploit them.
1.) Tesla Is Fine! Buy TSLA Stock on the Dip.
If you believed in Tesla’s overall story before Wednesday’s selloff, the 10% pullback should be seen as a great buying opportunity. At least, that’s the argument a number of TSLA stock bulls have floated since the deal was announced.
For instance, Global Equities Research analyst Trip Chowdhry says that TSLA and Amazon.com, Inc.(NASDAQ:AMZN) are the two most transformative companies in the world, and he compares TSLA toApple Inc. (NASDAQ:AAPL) prior to the release of the iPhone.
Baird analyst Ben Kallo says of the deal: “TSLA believes it can benefit from SCTY’s sales and distribution networks, and we believe the transaction would add cross-selling opportunities for Tesla Energy products and TSLA’s vehicles for SCTY’s large customer base.” The firm maintains an “Outperform” rating on Tesla and a lofty $338 price target for the stock.
If you believe Tesla eventually will dominate the global auto and battery markets … frankly, don’t sweat this buyout bid. TSLA just became more of a screaming long-term buy, so pick up shares at will.
2.) Musk Will Run Tesla Into the Ground. Sell TSLA!
Other analysts, such as Kynikos Associates president and TSLA short seller Jim Chanos, see…
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