One thing I love about the stock market is that you never really know what might happen. A presidential tweet here, a takeover there, an oil discovery over there — literally anything could happen in a crowded field of more than 10,000 North American companies.
Another fun (for some) aspect of the market is that, sometimes, things go the complete opposite of what was expected. Smart investors, fund managers, analysts, short sellers and others get it completely wrong, at times. We certainly do too, but that will be for another column, another time. Today, let’s look at five companies whose fortunes went in the exact opposite direction of what was generally expected:
Tesla (TSLA on Nasdaq)
Less than nine months ago, many thought Tesla was not even going to survive. The short sellers were ganging up on it, it was bleeding cash and it did indeed look fairly bad for the company. Sure, everyone admires the cars, but if you can’t produce them fast enough, or if you lose billions in the process, you are not going to be a prosperous company. Yet, flash forward a few months and Tesla is one of the best performing stocks so far in 2020, up a stunning 123 per cent in the past three months. What changed? Well, it looks like Tesla finally figured out how to make cars at a faster rate. It opened new facilities and is set for growth in Asia. It became a bona-fide momentum stock, and shares were driven up by FOMO buyers as well as panicking short sellers. For boss Elon Musk, with the company’s market cap now above $100 billion, he is in line for a $1 billion bonus from the company (in shares). Sure, Tesla has had its believers and champions of the stock, but we don’t know any investor who expected it to rise so far, so fast. Just this week a U.S. analyst bumped up his target price on the company, and shares exceeded that new target price on the very same day as the upgrade.
Home Capital (HCG on TSX)
Not so long ago, there was a good old fashioned ‘run’ on Home Capital, and its funding essentially dried up. Shares plunged, short sellers circled, and none other than Mr. Warren Buffett himself rode to the rescue of the company, with a big equity injection. The cash helped restore some investor and depositor confidence, and the company survived. But not only did Home Capital survive, it prospered. Earnings have recovered, it just bought back $150 million of its own shares, and its shares have been one of the best performers in the TSX financial sector, up 103 per cent in the past year. Three years ago, the thought of that was inconceivable. It has recovered so well that even the great Mr. Buffett left a small fortune on the table: he sold his remaining shares in late 2018 in the $16 range, and shares are $34 now.
Maxar Technologies Inc. (MAXR on TSX) 
High debt levels and a very negative short report combined to take Maxar shares down to $5.10 each in March of last year. Today, they are near $27, more than a five-fold increase. In 2020 alone, they are up 31 per cent. The short position (Canada and U.S.) is still more than 10 million shares, so there must be some pain going on for these investors that got this one completely wrong last year. Why the change of heart? Well, Maxar realized investors didn’t like its debt burden, so it went on a series of asset sales. Then, it told investors that it would indeed be getting an insurance settlement from its satellite on orbit failure, a big one, to the tune of $183 million. The company decided it had had enough of Canadian investors and decided to move its registration to the U.S. It now trades at 18-times earnings and still pays a small dividend.
Shopify (SHOP on TSX)
Our clients questioned the valuation of Shopify when it was $40 per share. Questions arose again when it as $100 per share; $200; $300, $400. ‘Too expensive’, they said. ‘Too risky’, others chimed in. Short sellers started to pile in, with (nearly) no one believing its high valuation was at all sustainable. Well, it is now $610, taking barely a month to hit $600 after just hitting $500 in December. It is now the 10th biggest company in Canada. Shares are up 191 per cent in a year, 18 per cent in 2020 alone at the time of writing. It’s hard to pinpoint reasons here. As a company in the Canadian indices, there are index buyers. There are momentum buyers. There are FOMO buyers. There were rumours of a takeover late last year, with Jim Cramer of CNBC indicating he had spoken to two companies who said they would like to buy Shopify. No matter the reason, investors just can’t get enough of this Canadian tech winner.
Virgin Galactic Holdings Inc. (SPCE on Nasdaq) 
When this company went public in 2017 at $10, it was seen as interesting, a ‘novelty’, and not really viewed as a serious investment. Space tourism travel? Really? The naysayers laughed, and at first were right: the stock dropped to a low of $6.90 in November. But since then it has been straight up (like a rocket, ha, sorry we could not resist), and it is shareholders who are laughing now, with more than a 70 per cent gain in 2020 so far. The stock hit a series of highs every day this week, and had tripled off its lows. Why the change of heart? Well, the shorts still think it is over-priced, with a 22 per cent short position still on the stock. But some investors are calling it the ‘next’ Tesla, and are saying hypersonic travel (not tourism) will turn this company into a giant winner. It has $677 million in cash, but minimal revenue (some from customer deposits), big losses and negative cash flow. But for now, at least, investors don’t care.
Peter Hodson, CFA, is Founder and Head of Research of 5i Research Inc., an independent research network providing conflict-free advice to individual investors (