Ken Griffin’s Citadel reported a record profit of $16 billion last year, bring its total earnings to $66 billion since its inception in 1990. That makes Griffin the most successful hedge fund manager in history, according to LCH Investments. It also makes him an excellent source of inspiration for individual investors.
On that note, Griffin sold nearly all of his Tesla (TSLA -0.74%) stock in the first quarter, but he bought a significant stake in the Invesco QQQ Trust (QQQ 0.73%), a growth-focused index fund that tracks the Nasdaq-100. In fact, aside from certain options contracts, the Invesco QQQ Trust is Citadel’s fifth-largest holding.
Here’s what investors should know.
Is it time to sell Tesla stock?
The bull case for Tesla is twofold: First, electric cars are becoming more prevalent due to concerns about the sustainability and environment impact of fossil fuels. Tesla is well positioned to benefit from that trend. It once again led the auto industry in battery electric vehicle (BEV) sales in the first quarter, capturing nearly 24% market share.
Tesla also achieved the highest operating margin among volume carmakers last year, an accomplishment that hints at superior manufacturing technology. Management believes it can maintain its industry-leading margins in the future as new manufacturing processes are implemented, new facilities begin producing vehicles, and full self-driving (FSD) software becomes a larger part of revenue.
Second, Tesla is well positioned to be a leader in autonomous vehicle technology. The company has more autopilot-enabled cars on the road than other automakers, meaning it has more autonomous driving data. That advantage hints at better artificial intelligence (AI) because data is the foundation of AI. Tesla vehicles are also equipped with what CEO Elon Musk calls the “most efficient inference computer in the world.”
Tesla plans to capitalize on its advantage in AI hardware and software by mass producing a robotaxi next year. That will put the company one step closer to launching an autonomous ride-hailing service, and Ark Invest estimates autonomous ride-hailing platforms will generate $4 trillion in revenue by 2027.
The bear case for Tesla centers on valuation: Shares currently trade at 10.4 times sales. That is a discount to the three-year average of 16 times sales, but that valuation is still outrageously expensive compared to automakers like General Motors and Toyota, which trade at 0.3 times sales and 0.8 times sales, respectively.
If Tesla is successful in disrupting the mobility industry with its FSD software and robotaxi services, its current valuation may look cheap in hindsight. But if Tesla fails to evolve into a software and services company, the stock is wildly overvalued at its current price. That concern, coupled with near-term uncertainty regarding demand for new electric cars, may explain why Griffin unloaded his Tesla stock.
So, is it time to sell the stock? There is no one-size-fits-all answer. Investors that believe in the robotaxi narrative should hold (or even add to) their stake in Tesla. But investors that lack confidence in that narrative should probably exit their position.
Is it time to buy the Invesco QQQ Trust?
The Invesco QQQ Trust is an index fund that tracks the Nasdaq-100, which itself measures the performance of 100 large-cap growth stocks. The index fund includes stocks from 10 of the 11 market sectors — financial stocks are excluded — but its capital allocation skews heavily toward the information technology and consumer discretionary sectors.
The top 10 holdings in the Invesco QQQ Trust are detailed below.
- Microsoft: 12.9%
- Apple: 12.3%
- Alphabet: 7.8%
- Amazon: 6.8%
- Nvidia: 6.6%
- Tesla: 4.2%
- Meta Platforms: 4.1%
- Broadcom: 2.4%
- PepsiCo: 1.7%
- Costco Wholesale: 1.6%
The Invesco QQQ Trust was the best-performing large-cap growth fund of the last 15 years. The index fund produced a total return of 750% (or 15.3% annually) during that time. At that pace, $150 invested weekly would be worth $160,000 in one decade, $828,000 in two decades, and $3.6 million in three decades.
As a caveat, an annualized return of 15.3% is probably unsustainable over the next 30 years, but the Invesco QQQ Trust will almost certainly deliver double-digit returns during that time, and history says it will outperform the broader S&P 500 (^GSPC 0.08%) index.
There is one more item worth mentioning. The Invesco QQQ Trust bears a below-average expense ratio of 0.2%, meaning the fees on a $10,000 portfolio would total just $20 per year.
Here’s the bottom line: The Invesco QQQ Trust is a great option for risk-tolerant investors with a long time horizon, particularly those who are bullish on technology growth stocks, and now is as good a time as any to buy a few shares.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Amazon.com, Nvidia, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon.com, Apple, Costco Wholesale, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends Broadcom and General Motors and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.