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Tesla Is ‘Definitely Overvalued,’ Says Bill Gross. What He’s Buying Instead.

Bill Gross favors natural-gas pipeline stocks, which offer yields between 9% and 12%.

Patrick T. Fallon/Bloomberg

Bill Gross’ end of 2020 may have been more eventful than most other people’s. Not only did the former Bond King spend the last weeks of the year in an Orange County, Calif., courthouse defending his right to blare the Gilligan’s Island theme song from his Laguna Beach mansion, he also managed to ponder what he calls the “Bubblicious stock market.

On Sept. 14, Gross warned that “there is little money to be made almost anywhere in the world” and urged investors to favor “shunned” areas such as tobacco, banks, and foreign companies listed on foreign exchanges. Since then, the S&P 500 is up nearly 11% and the KBW Bank Index is up 29%, while Altria Group (MO) is down 6%.

In his latest outlook, released Tuesday, Gross mused about his court case and a troublesome “automatic toilet seat” he recently acquired. Finally, he got to the good stuff and re-examined the drivers of the run-up in the market, namely “intense speculation” as well as “fiscally pumped, central bank-primed corporate earnings” as the Federal Reserve moved real interest rates to near zero.

“Let me suggest that ‘a lot’ of the market’s appreciation over the past two years, especially for growth stocks, has been due to lower real interest rates,” Gross wrote, arguing again that real interest rates are actually below zero.

“How many fiscal packages can the stock market stand before it realizes that GDP is now opioid-like, dependent on more and more dollars from Washington that turn our Republican supply-side capitalistic behemoth into a—gasp!—‘universal income-like’ sluggo similar to Europe?” Gross wrote. He noted that European markets trade at much lower price/earnings ratios than recent U.S. initial public offerings such as DoorDash (DASH) and Snowflake (SNOW) but on its current path, the U.S. market may start to resemble Europe’s.

IBM [IBM], here we come—just maybe,” Gross wrote, noting that the tech company recently traded at 10 times earnings and offered a 5% yield. Tesla (TSLA), is “definitely overvalued,” in Gross’ view, due in part to the run-up it saw from Robinhood traders he referred to as “groupies.”

As for where Gross is putting his money these days, he favors natural-gas pipeline stocks, which offer yields between 9% and 12% and, in some instances, tax advantages. Magellan Midstream Partners (MMP), BP Midstream Partners (BPMP), and Enterprise Products Partners (EPD) are among his picks. The three were all up more than 3% on Tuesday, while the S&P 500 gained 0.7%.

Write to Carleton English at [email protected]

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