Why Tesla's stock is surging and why you should buy now: Tom Lee - Business Insider

Tesla's stock is still an attractive buy even after doubling in price in just a short time this year, according to Tom Lee, the cofounder of Fundstrat. Lee said a short squeeze does not fully account for the stock's explosive rally. He also explained why Tesla is still one of his best stock picks for the next 3-5 years. Click here for more BI Prime stories. Tesla's stock is staging the kind of rally normally reserved for biotech companies that get approved to sell lifesaving drugs.

Shares of the electric-car maker have rocketed roughly 110% this year and more than 300% in six months. At one point, the company's market value was greater than iconic brands like McDonald's and Nike.One catalyst that sent the stock flying happened to be the group of traders who were betting on the opposite scenario. They were the short sellers who pounced on Tesla more than any other US stock, and were being forced to liquidate or cover their positions by buying.But according to Tom Lee, the cofounder of Fundstrat, there is an even bigger reason why Tesla's stock is staging its monstrous ascent beyond just a short squeeze. It is the fear of missing out. And while this is sometimes associated with retail traders looking to make a quick buck, Lee says institutional investors are the ones who cannot help but buy this time.

He pointed out that although Tesla makes up just 0.7% of the Russell 1000 growth index, the company is responsible for as much as 15% of its year-to-date gains. In other words, Tesla is pulling more than 21 times its weight in an index that serves as a benchmark for many portfolio managers. Another way of looking at it is that Tesla's year-to-date contribution to the index's gains are outranked only by Microsoft and Amazon, two companies that are already widely owned. Lee added that many of these growth managers may have entered 2020 with underweight positions because Tesla's stock was volatile last year and its returns were comparable to the broader market's.“The FOMO of Russell 1000 Growth managers is likely contributing to this stupendous surge,” Lee said in a note on Tuesday.

Lee is not yet advising clients to take profits on this stock. It remains on a list of companies that appear in multiple thematic baskets of stocks that Fundstrat manages for subjects like artificial intelligence and inflation.In other words, this list that Tesla is on reflects Lee's best-of-the-best stock picks and themes. Tesla fits within following two themes: Millennials are entering their prime consumption years and will soon drive up to 50% of gross domestic product growth.Tesla is one of the companies that would benefit from automation amid a shortage of skilled workers. Other stocks exposed to more than one of the big themes Lee is betting on include Apple, Cisco, Paypal, and American Express.