Jim Cramer thinks you should still sell your Nikola shares

Jim Cramer of CNBC Mad Money still thinks investors should sell shares of Nikola after its founder, Trevor Milton resigned.

The media personality expressed his dissatisfaction with Nikola Corporation and advises investors to sell if possible.

The electric vehicle maker rounded up Tuesday’s session up 3.4% at $28.51 per share. This followed a 19% decline from a day earlier after the company’s founder resigned voluntarily as executive chairman.

“Even though the stock bounced today on the Milton resignation, I don’t like it,” said Cramer. “Ever since Nikola started trading, I told you there was too much hype and not enough substance to this one.”

Trevor Milton’s voluntary step down followed a series of accusations from a short-selling firm, Hindenburg Research which claimed Nikola made untrue statements about its technology to attract more investors and get new partnerships with other automakers, with General Motors inclusive.

The Securities and Exchange Commission (SEC) is currently looking into the accusations against Nikola for misleading investors.

In response to Hindenburg's claims, Nikola said the short-selling form's report contained "dozens" of misappropriating claims. The automaker, however, acknowledged the allegation of a video it staged to show a Nikola truck functioning on its own when in actuality it wasn't.

During a virtual conference, Nikola CFO, Kim Brady said the allegations do not change anything about the company, regarding its mission and future potential. “We recommend that investors really focus on the future and what we have delivered and what we’re going to deliver,” she said.

Although Hidenburg’s allegations may prove a point about Nikola, it is without any doubt that the firm has a financial incentive in view. It has taken a short-position with hopes that the stock will go lower. Cramer also speaks in support of short-selling firms in the market. He, however, adds that he wasn’t saying that “shorts like Hindenburg are always right” citing the likes of J2 Global.

“But when a short-seller brings highlights some major red flags, you’ve got to take it seriously. Even if you ultimately think that they’re wrong, you have to contend with their arguments,” said Cramer. “In the case of Nikola, the bear case was overwhelming and I’m glad Hindenburg went after them.”

As for investing in Nikola, Cramer says he thinks investors should “stay away” as there are “much better places” to put their money, he said, since July 22 when Nikola stock closed nearly $33 per share. Although the share price later soared to nearly $94 on June 9.

Cramer said Tuesday that he understands that many investors may still be enticed to continue with their Nikola shares due to its future potentials and other upsides.

“When you see a bunch of bright red flags, you have to sell and sell quickly, even if you still have conviction,” he said. “When you’re investing, the only thing more important than making money is not losing money. As long as you contain your losses, the gains will take care of themselves.” 

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