A lot of people the past few weeks have wondered why their beloved stay-at-home stocks are falling. This particular group has traded sideways in the wake of positive COVID-19 vaccine news from both Pfizer Inc. (NYSE: PFE) and Moderna Inc. (Nasdaq: MRNA) in back-to-back weeks.
It reminds me of a time I interviewed Berkshire Hathaway CEO Warren Buffett back in 2000 when I was a financial journalist.
Tech stocks were super popular back then, too. So of course he got a lot of questions about them from the media. His basic response can be summed up in just a few words: price paid, value received.
And what he meant was it doesn’t matter what the stock is. It could be safe. It could be risky. But if you pay the right price for it, you can wring true value out of it.
In other words… you can make a lot of money!
And Buffett’s words come to mind these days when I look at this year’s investing craze: stay-at-home stocks.
I’ve seen it time and time again. A group of stocks gets super hot. We all make a ton of money and… poof. The sector goes cold as a stone. And that’s what’s been happening the past month and that’s why stay-at-home stocks are falling.
Pick any of the stay-at-home stocks like Zoom Video Communications Inc. (Nasdaq: ZM), Amazon.com Inc. (Nasdaq: AMZN), Peloton Interactive Inc. (Nasdaq: PTON) and many others. Chances are their shares are lower than they were three or four weeks ago, despite the rest of the stock market’s march upward.
And that leaves you to wonder… “I bought these great stocks. They’re the best of the best in their industries. So after watching the broader market go straight up for days at a time, why are my stay-at-home stocks falling instead of helping push markets even higher?”
It’s a classic trap…
It’s the same way value investors get stuck in value traps — stocks that appear to be good buys but aren’t. And the book-end to that is what I call a “growth trap.”
A growth trap happens with companies that have soaring revenue and profits that will likely beat Wall Street estimates by a wide margin. But the stock isn’t going up anymore… So why is that?
The problem is all of the growth you’re seeing and projecting in the near-term is already priced into the shares. Peloton is a great example of this…
So check out my short video on why stay-at-home stocks are falling and let’s discuss this further. Then share your thoughts in the comments below.
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