Feb. 10, 2014, 6:01 a.m. EST
5 momentum stocks to watch out for
Opinion: After a good run it might be time to walk away
By Jeff Reeves
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In 2013, when skies were blue and 30% gains were the norm, some investors were lulled into a false sense of security.
They told themselves stocks that ran up 50% in a few months were always deserving of those quick gains.
They told themselves that everything was going up, so there was no pressing need to trim back on a stock that was up big, and had grown to a huge share of their holdings as a result.
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They took a few risky trades that paid off, and that made them take on even bigger risks next time. These days, however, those strategies are dangerous.
Take social media darling Twitter Inc.TWTR +0.83% From its November IPO to its December Peak, Twitter tacked on as much as 70%.... but it’s down almost 20% in just a few days, however, after its grimearnings debut.
It’s not just Twitter, either. Momentum stocks in all sectors and of all sizes are seeing trouble and burning investors who have become overweight in shares.
•Fashionable “disruptor” 3D Systems DDD +1.52% tacked on 180% in 2013. Thanks in part topoor preliminary earnings, it’s given up 30% since Jan. 1.
•Consumer electronics chain Best Buy BBY +0.04% was up 250% in 2013. It’s down 40% year-to-date in 2014 on disappointing holiday sales.
•Anti-aging mid-cap Nu Skin NUS +1.39% soared 290% last year. It’s down almost 50% year-to-date on pyramid-scheme allegations in China.
While each stock obviously has its own challenges and specific headlines that prompted the recent declines, the thing they share is that all are quintessential momentum trades.
That was great when momentum was higher... but all have proven quite painful when the direction changes.
Broadly speaking, you should always keep a close eye on portfolio allocations to mitigate risk and prevent a single position from becoming too large a part of your holdings.
But specifically, there are a few high-fliers on my radar right now that I think are tricky trades given this environment and their unique businesses.
Here are five high-beta, cyclical momentum stocks that have had big runs recently and could be poised to decline:
- ADSK
- ETFC
- CSIQ
- CAR
- MPEL
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