Tesla s (TSLA) stock price surged an astounding 743% in 2020, a growth rate that would have put many dot-com stocks to shame during the tech bubble in the late 1990s. Although the stock briefly dipped at the end of January 2021, the price has risen another 24% thus far this year.
The value the market is placing on Tesla is eye-popping. At the current stock price, the market value of its equity is $825 billion, making Tesla the sixth-largest company by equity market capitalization in the Morningstar US Market Index. At its current market cap, Tesla s equity is 8 times more valuable than the world s largest auto manufacturer, Volkswagen (VOW3), and approximately 7 times the combined equity valuation of both General Motors (GM) and Ford (F). Over the course of 2020, Tesla s equity market cap increased by almost $600 billion, which is greater than the total equity market cap of Warren Buffett s Berkshire Hathaway (BRK.B).
The idea of buying quality companies at a discount to what they are worth is no revelation. Keeping an eye on quality can help investors screen out stocks that might be cheap for very good reasons, and being conscientious about valuations may prevent them from overpaying for quality franchises.
Within the realm of U.S. equity exchange-traded funds, there are eight that appear to balance this dual mandate. These funds, featured in Exhibit 1, rank in the cheaper (as measured by their price/earnings ratios) and more profitable (as measured by their return on assets) halves of the universe of broad U.S. stock ETFs. Additionally, each has accumulated over five years of track record and has an expense ratio less than or equal to 0.25%.