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Tesla Model 3 vehicles are seen at a factory in Shanghai, China, on Jan. 7.Aly Song/Reuters

Tesla Inc. is suddenly everyone’s must-have, gotta-buy stock. The upstart automaker’s stock price has surged more than 60 per cent over the past week and rose more than US$100 on Tuesday to close at US$887.06 – about double the level it began the year.

By way of contrast, General Motors Co. shares look about as exciting as a flat tire. The stock has wandered downward in recent months and is now trading at one of its lowest levels of the past year.

So which stock is the more attractive investment? The answer may not be as obvious as you think.

At its current price, Tesla is priced for perfection and maybe beyond. One upbeat but sober analysis suggests it may be worth less than half its current price.

In contrast, GM appears remarkably cheap. Among other virtues, it trades for under six times earnings at a time when most companies go for three times that multiple. In addition, it pays a 4.3-per-cent dividend, which offers a fine reason to stick with the stock, so long as you see a future for the company.

Sure, Tesla is delighting its fans with an expanded lineup of models, but GM boasts the advantages of size. While forecasters expect Tesla to have sales this year of US$32-billion or so, GM’s revenue will likely exceed US$144-billion.

Better yet, GM may finally be getting results from the reform program that started after its near-death experience during the financial crisis.

Among other achievements, the company is taking an axe to costs, according to an analysis published last week by Richard Hilgert and other analysts at Morningstar. By their reckoning, the precrisis GM North America was profitable only when the industry was selling 16 million units a year or more in the United States. Today, they figure, the new GM could eke out a profit even if industry sales slumped to an annual level of less than 11 million units – similar to the recessionary lows hit during the worst of the financial crisis.

The Morningstar auto analysts named GM stock as one of their best ideas for 2020, and pointed to multiple reasons to be optimistic about the company. For instance, GM appears to have largely closed the quality gap with Japanese rivals, they wrote. In the 2019 J.D. Power Vehicle Dependability Survey, GM vehicles won five segment categories, the most of any manufacturer.

GM stock still faces considerable skepticism, the Morningstar team acknowledged. However, they believe the shares have considerable appeal right now because the company can remain competitive even in a downturn, “while still paying a generous, and we feel safe, dividend currently yielding above 4 per cent.”

Tesla investors, of course, may find that to be a less than inspiring sales pitch. They’re hunting for bigger game than a reliable dividend.

The bull case for Tesla stock now pegs it at around US$1,000 a share, according to Dan Ives, managing director of equity research at Wedbush Securities in New York. In a report Tuesday, he pointed to three fundamental reasons why the stock has soared in recent weeks.

For starters, there was the successful launch of the company’s new Chinese factory, coupled with hopes for rapidly expanding sales in that country. On top of that, there were signs of improved profitability across all of Tesla’s operations. Finally, and crucially, there were bullish comments on Monday from Panasonic Corp. about its automotive battery partnership with Tesla, which is now making a profit for the first time.

Mr. Ives said those fundamental shifts set off a massive wave of buying by investors who had previously sold the shares short – that is, sold shares they didn’t actually own in hopes of profiting from a decline in the share price. As shares moved higher, the short sellers needed to buy Tesla shares to cover their positions, and that “short covering for the ages” pushed Tesla even higher, Mr. Ives said.

So where does the stock go from here? Despite being a vocal Tesla fan, Mr. Ives acknowledges the exuberance may have gone too far. His baseline model now puts a 12-month price target of US$710 a share on the stock – almost US$200 less than the US$900 territory where it is now trading.

Other observers are even more cautious. Aswath Damodaran, a finance professor at New York University and expert on stock valuation, published an entertaining blog post last week about his own experiences with Tesla’s madly volatile stock.

He bought shares this past June, when many investors thought Tesla was on the brink of failure. Back then, his valuation spreadsheet concluded the company was worth just more than US$190 a share, so he bought shares when they fell to US$180.

Much to his delight, the stock began to rise and kept on rising. When the stock neared US$600, Prof. Damodaran revisited his valuation. Even boosting his assumptions for growth and profit margins, he could not arrive at a valuation higher than US$427 a share. So he sold his shares last week at US$640 each.

“The momentum is strong and the mood is delirious, implying that Tesla’s stock price could continue to go up,” he wrote. “That said, I am not tempted to stay longer … because I came to play the investing game, not the trading game.” Anyone tempted to jump into Tesla stock at these prices may want to ponder his decision.

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