When one of the largest shareholders in a company increases its position in a stock, it is best to pay attention. Baillie Gifford & Co. recently filed its 13F for the second quarter, and through that filing, we learn that the investment firm upped its holding in Tesla Inc (TSLA).
It wasn’t only Baillie Gifford adding to Tesla stock that should catch your attention. Another famous investment shop, Baupost Group, LLC., didn’t buy the stock, but they did buy the convertible bonds, paying anywhere between $10 to $20 above par value for the bonds in the first quarter.
The big bets between the two firms come at an exciting time for the stock, as it ramps up the production of its all-new electric four-door sedan Model 3. Tesla’s future success and its path to profitability hinge on the company’s ability to produce these cars at scale, while also at a price that appeals to the mass market.
Baillie Ups its Stake
Interestingly Baillie Gifford upped its holdings of Tesla in the second-quarter by nearly 400,000 shares. It now has a position of about 13.2 million shares and owns about 8 percent of the company. It is not a small investment either with the price of the stock at roughly $300, the market value is about $3.95 billion, representing nearly 5 percent of the firm’s total portfolio.
Baupost Buys the Bonds
Much has been made about the rising cost to insure against a potential default on Tesla’s bond payments. However, it sure didn’t stop Baupost Group from buying $50 million worth of Tesla 2.375% Convertible Notes due in 2022. These bonds are currently trading at a premium of about $110, versus par value at $100, according to Market Insider, and traded between $110 and $120 for most of the first quarter, but as low as par near the end of the quarter. One reason why Baupost is playing these bonds is that they may be a less risky way to acquire a position in the stock in the future. In this case, the owner of the bonds can convert its position into stock at a price of $327.50.
Much at Stake
Tesla does have a lot at stake this coming quarter, and results will likely not be as significant as guidance when it reports results on August 1. What Tesla says about gross margins on the Model 3 and how it plans to earn a profit in the third and fourth quarter will be critical to where the stock price goes over the coming months.
However, sometimes watching what the biggest holders in a company, and one of the smartest investors around are doing, isn’t a bad indication either of which way the stock may be going.