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Tesla overvalued, Ford well positioned in EV market: Strategist

New Constructs CEO David Trainer joins Yahoo Finance Live to discuss the EV market at large and details growing competition between Tesla and Ford.

Video transcript

- Well, Americans are coping with a lot of uncertainty in the markets. Investors have their eye on big retail earnings. The drama in D.C. over the debt ceiling. And the exuberance we have seen today around AI. Our next guest has some advice about the best ways to play in the market amid all of the volatility. Here with some stocks to add to your portfolio and some to avoid, let's bring in David Trainer. New Constructs, CEO.

David good to talk to you today. Let's start with the one that really stood out to me, which is Ford, this is a stock you really like, along with GM. A legacy automaker who has really pivoted to EVs. I wonder how you're looking at that stock. Because, yes, they've made big bets there, and yet they are still, as recent results showed, a long way from profitability, at least on the EV side.

DAVID TRAINER: Yeah. And honestly, so is Tesla. I mean, Tesla brags about cash flow, but their free cash flow burn has been huge, whereas GM have profitable legacy businesses that generate a ton of positive free cash flow. So they can actually subsidize the losses in EV in the way that Tesla cannot. Tesla sold enormous amount of stock, we all know about that, and they don't make real cash on the business.

So we think the EVs are effectively inherently better positioned to enter a new market than even the incumbents. Even the first-mover advantage for Tesla is not over comfortable. I think it's already been overcome.

- So David, when it comes to Ford's, I guess, potential to really recapture some of that market share that it has not been able to get here from Tesla. Yet what does that look like, and do you think they're going to be able to get the two million EV goal that Jim Farley has laid out a number of times?

DAVID TRAINER: I think so. I mean, look, they've got a track record of actually mass-producing vehicles at scale and with quality. Tesla doesn't have that. They've done it before. I think they will. And we've seen Tesla's market share already see pretty drastic declines in Europe or more advanced EV markets. We think the same thing will happen here.

The main difference, really-- one of the main differences between Ford and GM, though, in terms of risk-reward, which we think is most important. At the end of the day, unless you've got a crystal ball and can predict the future, you need to do the best you can with respect to risk-reward. The risk in GM and Ford is extremely low compared to Tesla.

The stock prices of both GM and Ford imply large permanent profit declines. No profit growth, permanent profit decline. Tesla, on the other hand, its stock price implies that it's going to be nearly as profitable as Apple. So there's a ridiculous amount of expectations for future profitability in Tesla, and there's expectations for the opposite of in GM and Ford, so you just got a much better situation in terms of risk-reward.

- Another stock you really like is CSCO. You could argue that's one of legacy tech names. And what do you like there, and how much upside do you see?

DAVID TRAINER: Yeah, it's cheap also. And we're seeing not maybe as much upside in a Ford or GM, but there's a good 20% to 30% upside, which we think is very strong in a very kind of heady frothy market.

And look, it's like the picks and shovels of the growth in the data business and the growth in the internet, right. I mean, the plumbing and the infrastructure that CSCO provides is going to see plenty of tailwinds for its demand as demand for data we all know is only getting bigger and faster, and we don't expect that to stop. And Cisco's priced at a discount to a lot of these other heavy tech names like NVIDIA, for example, which is priced for perfection. We think you get much better risk-reward in a stock like CSCO.

- David, what does this stock like CSCO, though? Because we have heard some cautious comments from Chuck Robbins in the last earnings call, saying that he is seeing some caution when it comes to their clients. If we were to see a recession, what does that mean for a name like CSCO?

DAVID TRAINER: I mean, it's a lot less resilient than more high-end ticket items like a Tesla or even in more cyclical area like an Nvidia. I mean, people are-- everybody's using more data. And think about again, CSCO more like picks and shovels for that area. And so we think they'll be better off in a recessionary environment.

But the main thing is the stock price is so much cheaper, the valuation is so much less. You've got a lot less downside to deal with if the economy goes into the gutter.

- David, one of the names that you're watching is CAVA. They recently just filed to go public. What do you think that setup looks like? Are you potentially interested in a name like that, given some of the underperformance that we've seen from the other names in that space recently?

DAVID TRAINER: We think CAVA is the next WeWork. We don't think this IPO should actually ever happen. This is a ruse to trick unsuspecting retail investors into buying. What is a terrible business? It's burning cash flow. It's cash flow is only going to get worse.

And we think the only reason this company is deciding to IPO in this environment because if they can't get an IPO done now, they never will because the cash flow burn is going to get even worse. We just published the report on our own website. We're one of the few firms is going to provide you any IPO research. We're one of the few firms that's going to provide you honest research, and CAVA is one to avoid for the ages.

- David Trainer always with the brutal assessment there. Good to talk to you today. I appreciate the time.