Stocks to Watch: TSLA, PWRD, AAPL

Tesla Motors (TSLA) stock surged again past the $120-a-share level Friday on reports that the automaker has received hundreds of orders for its new Model S sedan, enough to double the number of electric cars on the roads of Hong Kong. According to Hong Kong’s Transport Department, the city had 303 registered private electric cars at the end of April; that number will likely double with the release of the Model S.

TSLA, which climbed to an all time high of $121.89 on July 2, reacted positively to the news ; gaining 4.21 percent to close at $120.09 on the Nasdaq. Volume was relatively strong with nearly 7 million shares trading hands compared with a daily average of 9.4 million shares.

From a technical perspective, we should point out that Tesla’s stock has rallied 280 percent in the last 52-weeks. The spike has pushed the ticker’s price-per-share to about 139x forward P/E and nearly 80x book value. Also, in terms of profitability, the co.’s profit and operating margins are currently negative at (31.23%) and (32.92%), respectively.

For value investors it goes without saying that these numbers suggest risk and ‘overvaluation’. For a momentum trader however, while recognizing that right now it’s hard to chase, if the stock holds its support level located at the $114 area, we could see upside follow-through above Friday’s high.

TSLA has room for another leg higher to $128, which is our short-term target to the upside.

Perfect World (PWRD) traded near a multi-year high on Friday, before pulling back to its current pps of $18.86. After a consolidation phase in May, PWRD spiked in a matter of weeks from under $15 a share to over $20.00 a share. While the name may be short-term overbought — PWRD’s share price has an RSI value of 67.10 — any pull back should be seen as another consolidation phase with an upward bias. PWRD will most likely re-test its 52 week highs set on July 3, with a break potentially sending the stock to new all-time highs.

Unless key support levels currently at $16.90 and $15.90 are convincingly penetrated, the buy the dips strategy is still the higher probability trade. We believe the stock will continue to trade in an uptrend given that both its trailing P/E and forward P/E ratios are at 12.50 and 9.9, respectively. PWRD has a PEG of 1.25.

If the stock gets above its all time closing high, we could see it print the tape at $23, which is our short-term target to the upside.

Apple (AAPL)’s price action this past week showed the name’s failure to take out near-term resistance at $426. This is bearish. Apple will need to hold support at $419. A violation of the $419 level suggests that AAPL, which currently trades at just 9.3x projections for earnings this fiscal year, risks a correction back to $400.

Recently, Raymond James upgraded the Cupertino-based company to a strong ‘buy’ from an ‘outperform’ rating with a price target of $600. The firm said it expects the tech giant’s near-term financials to soon stabilize and then improve. Raymond James thinks shares have bottomed and earnings will improve during the 2nd half of FY 2013. Apple’s earnings are expected to increase over 10% in FY 2014 and at an average of 20% annually for the next five years.

As we have reiterated before, the iPhone maker shares remain a strong buy below $400.

Disclosure: No Positions

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