That might seem like a crazy decision in an era when electric vehicles are poised to take over the auto market and Elon Musk can move millions of dollars with a tweet, but Collins thinks that there’s more here than meets the eye.
“Tesla's myriad quality problems in China have put the bloom off the rose there,” Collins writes. “That is now showing up -- reportedly -- in orders, which would logically show up in deliveries in the next few months.”
Tesla isn’t the only stock in his headlights. Also on Collins' list are major companies like RH (RH) - Get Report Restoration Hardware and Twitter (TWTR) - Get Report, firms that he thinks the market has simply overvalued.
“We are living in strange times for equity markets,” Collins writes.
Long-term data is showing the first real signs of inflation in years. Economists are unsure whether this signals a real inflationary curve ahead or just temporary bottlenecks in global supply chains brought on by COVID. Bond markets are shrugging it off, but assets have hit the point where people are paying “ridiculous multiples” on their value.
So, in a market flush with overvalued stocks and conflicting data, where should investors look for value? That’s harder to pin down… But Collins recommends that investors start in two places: energy and Brazil.
"Why Brazil? My frequent trips there (I just returned yesterday to NYC from Sao Paulo) have convinced me that this country is about to experience a period of above-average economic growth. Brazil's COVID numbers aren't impressive yet, but the vaccination campaign has accelerated, and I believe the pandemic is past its peak even in the middle of winter there. But Brazil's economy, other than tourism, is most dependent on people making "stuff" and buying the raw materials to make that stuff from Brazil. That business is booming now."
Tesla shares closed down almost 3% on Tuesday at $599.36.
At the time of publication, Jim Collins' firm was short TSLA.