Hedge Tesla Stock Price Volatility: 2 Canadian Stocks to Buy Today

It is not just Dogecoin but also Tesla stock that moves on Elon Musk tweets. Two stocks can hedge you against Tesla’s volatility.

| More on:
Volatile market, stock volatility

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Are you long on Tesla (NASDAQ:TSLA) stock? It’s a good decision. The electric vehicle (EV) maker has eye-popping fundamentals and growth potential. Tesla is more than just an EV maker. It has energy storage, a used car business, battery, and powertrain. And Tesla might give its shareholders priority in the stock allocation of Elon Musk’s Starlink, which is expected to launch an initial public offering (IPO) in a few years. There are many perks of being a Tesla shareholder, but it comes with the risk of the Elon Musk bubble. 

Tesla stock exposed to Elon Musk bubble

Tesla’s revenue and adjusted EBITDA surged 75% and 94%, respectively, year over year in the first quarter. And this is just the start. Tesla enjoys high demand, and it is expanding its supply and reducing its cost to meet the demand. But its stock is equally overvalued, as the market is bullish on Tesla. Tesla CEO Elon Musk has an influence on netizens. The biggest example of the kind of impact Musk tweets have is visible on the Bitcoin and Dogecoin price graphs.

Tesla stock surged 126% between November 2020 and January 2021 on the back of the EV wave. The EV wave came as newly elected U.S. president Joe Biden pledged to reduce carbon emission through EVs and wind power generation.

Tesla stock surged past $850 in January, but then came the Elon Musk bubble. Musk took to Twitter and started the whole Dogecoin mania that hurt Tesla stock. The stock dipped more than 23% between February and June. It is now recovering on the hopes of Starlink IPO, a high-speed space-based internet service. 

Two stocks to hedge against Tesla stock’s volatility  

I would suggest you buy Tesla stock at the current levels to enjoy the many perks it offers. As for the Musk bubble, you can hedge that risk with these two Canadian stocks. 

Magna International (TSX:MG)(NYSE:MGA) is another major player riding the EV wave at multiple fronts. Unlike Tesla, whose revenue is focused only on two EV models, Magna provides third-party automotive manufacturing services to 23 of the top 25 EV makers. Magna also offers automotive components to a large number of automakers. And it is not exposed to the Musk bubble.

Both Magna and Tesla are driving on the EV road, but the former’s stock is less volatile than the latter. Magna stock surged 84% since Joe Biden’s presidential win in November 2020. As the EV momentum eased, the stock corrected 12%, creating a buying opportunity. 

Diversify the risk

Another effective way to hedge volatility is to diversify, and the most efficient way to diversify is through an ETF. iShares NASDAQ 100 Index ETF (CAD-Hedged) (TSX:XQQ) has Alphabet, Tesla, and Nvidia among its top holdings. All these companies are leading the autonomous vehicle space. The ETF will give you exposure to some of the world’s best tech companies that are changing the future. And Starlink will also most likely launch its IPO on NASDAQ.

XQQ ETF has surged 28% since November 2020 and continues to rise gradually. 

Bottom line 

To all Tesla shareholders, remember volatility doesn’t prevent great long-term returns. But if it still concerns you, there are less-volatile stocks to balance the risk. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Fool contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), NVIDIA, Tesla, and Twitter. The Motley Fool recommends Magna Int’l.

More on Investing

Simple life style relaxation with Asian working business woman healthy lifestyle take it easy resting in comfort hotel or home living room having free time with peace of mind and self health balance
Stocks for Beginners

New Investors: Follow the KISS Model With These 3 TSX Stocks

These TSX stocks keep it super simple for new investors. You'll need each of these services over the next decade…

Read more »

stock research, analyze data
Dividend Stocks

RRSP Investors: 1 Cheap TSX Dividend Stock to Buy Now and Own for 35 Years

RRSP investors can still find top TSX dividend stocks to buy at discounted prices.

Read more »

A airplane sits on a runway.

Why Did Bombardier (TSX:BBD.B) Stock Surge Over 75% in a Month?

Bombardier (TSX:BBD.B) stock has surged over 75% in last 30 days after strong second-quarter earnings. Is it a buy at…

Read more »

financial freedom sign
Stocks for Beginners

Millennials: Pay Down Debt and Get Rich in Just 1 Decade

Millennials continue to have huge debt on their hands, but they can pay it off and become rich by getting…

Read more »

Cogs turning against each other
Dividend Stocks

2 of the Safest Stocks (With Dividends) to Buy in Canada Now

Here are two of the safest stocks investors in Canada can buy now.

Read more »

Money growing in soil , Business success concept.
Tech Stocks

Got $1,000? Buy These 3 Top Growth Stocks

These three Canadian growth stocks could deliver superior returns over the long run.

Read more »

edit Businessman using calculator next to laptop
Dividend Stocks

2 Top Canadian Value Stocks Worth Buying Right Now

Here's why Alimentation Couche-Tard (TSX:ATD) and Toronto-Dominion Bank (TSX:TD)(NYSE:TD) are two top value stocks to consider right now.

Read more »

A worker wears a hard hat outside a mining operation.
Metals and Mining Stocks

Ivanhoe (TSX:IVN) Had a Record Quarter: Should You Buy the Stock Today?

Ivanhoe Mines Ltd. (TSX:IVN) delivered record profits in its Q2 2022 earnings, which should spur investors to look hard at…

Read more »