The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.
Best Buy (BBY) learned the hard way on Thursday that momentum is very, very, very fickle.
Shares of the electronics retailer plunged nearly 30% after it reported disappointing sales for the holidays. In other words, it was not a Holly "Joly" Christmas for CEO Hubert.
Is the sell-off an overreaction? Not necessarily. Best Buy was a market stud in 2013. The stock surged 237% last year, making it the third-best performer in the S&P 500. Anytime a stock goes up that much, the company will immediately face the type of expectations that Charles Dickens wrote about.
Best Buy isn't the only Wall Street hero of 2013 that's turned into a zero in the early part of 2014. Netflix (NFLX), which soared nearly 300% and was the biggest gainer in the S&P 500 last year, is down more than 10% already. It's the second-worst performer in CNNMoney's brand spanking new Tech 30 index.
The stock has fallen due to concerns about valuation and whether or not investors are overly optimistic about subscriber growth.
In the past few days, there have also been worries about how a court decision to overturn so-called net neutrality rules will impact Netflix.
Twitter shares are down about 5% this year. Sure, that's not that big of a drop. But Twitter, which has more than doubled from its initial public offering price, is down nearly 20% from the all-time high it set late last month.
The stock has been insanely volatile this year, getting whipsawed almost daily due to conflicting opinions from Wall Street. It goes up when a sell-side analyst says something nice about Twitter and tanks when someone publishes something bearish.
Still, the fact that there is any skepticism at all shows that investors are a little worried about how strong the company's financial results will be. Twitter's first earnings report as a public company is due out on February 5 -- and it's probably a misnomer to call it an earnings report since analysts are predicting a loss.
Nike was one of the biggest gainers in the Dow last year, rising more than 50%. But the stock is down 5% this year, making it the Dow's second-worst performer.
The company's earnings report from December raised some concerns about growth in emerging markets. And since the stock routinely hit all-time highs last year, the valuation may be higher than the vertical leap of LeBron James. There is also tough competition from the likes of Under Armour (UA).
And then there's GameStop. Shares nearly doubled last year on excitement about hot new games, such as "Grand Theft Auto V" from Take-Two Interactive (TTWO) and "Call of Duty: Ghosts" from Activision Blizzard (ATVI).
That led to very lofty expectations. And GameStop did not live up to them. It said Tuesday that earnings for the fourth quarter would miss forecasts. The stock fell 20% that day and is down nearly 25% so far this year.
What all the companies I've mentioned so far have in common is that they went up a lot in 2013 and were therefore priced for perfection. All of these companies have shown hints that they are far from perfect.
And that usually has momentum investors fleeing for the exits faster than bugs running away from a can of Raid.
Of course, not every hot stock from 2013 is suffering this year. In fact, there are a few that have continued to surge. Delta (DAL) and Facebook (FB) were the fourth-best and tenth-best performers in the S&P 500 in 2013. They're both up in 2014 and remain near all-time highs.
Although one could argue that it's a stock that has rediscovered momentum as opposed to maintaining it. While shares of the electric car maker did go up nearly 350% in 2013, it did have a noticeable hiccup last autumn.
So investors looking at last year's rock stars have to realize that chasing momentum is very risky. The winners of 2013 need to keep proving that last year's run-up was justified. If any of them miss the mark, they could suffer the fate of Best Buy and immediately go from being a hot dog to a plain old dog.
Reader Comment of the Week! The FDA issued a warning this week about the risks associated with high doses of acetaminophen. This should not impact anyone taking over-the-counter painkillers with acetaminophen like Tylenol. So this isn't something that should affect shares of Johnson & Johnson (JNJ).
But the warning did prompt me to tweet out a Name that Tune challenge. One of my favorite bands has a song that includes acetaminophen prominently as a lyric. "Acetaminophen, You see the medicine oh girl."
My really good college buddy (and groomsman in my wedding!) Brian Nolan was the first to respond correctly that it was a song by The White Stripes. (Give me a sugar pill and watch me just rattle down the street.)
And since he was born and raised in Massachusetts, I could not resist taking a shot at his favorite football team.
Congrats Brian! Although I still am rooting for Denver and their Papa John's/DirecTV/Buick/Gatorade loving quarterback Peyton Manning. (Omaha!)
Then again, if the Patriots triumph on Sunday and also go on to win the Super Bowl, it would prove that Tom Brady can only win the big game when he's not playing my beloved (but now sadly mediocre) New York Giants!
How's that for a sad bit of rationalization?
This article was published in the July issue of Money magazine.
You may think it's crazy to buy shares of companies that have a lot of people betting against them. Yet isn't that the very essence of contrarian investing?
Several stocks that have been recent targets of short-sellers -- investors who borrow shares and sell them, hoping to buy them back later at lower prices -- have been some of Wall Street's big winners MOREPaul R. La Monica - Jun 19, 2013 9:20 AM ET
Investors appear to be betting on a Christmas miracle for GameStop.
Shares of the video game retailer were up nearly 5% in morning trading Thursday, despite a less-than-stellar quarterly report.
GameStop (GME) said it lost $624.3 million in the third quarter, while global sales declined nearly 9%.
But the company's "adjusted" results came in better than expected. Excluding certain charges, GameStop said it earned 38 cents per share, topping analysts' forecasts by 6 MOREBen Rooney - Nov 15, 2012 12:39 PM ET
Not a member yet?Sign up now for a free account
|Greece deeply divided as vote on Europe looms|
|Why China's crazy stock market is getting scary|
|Aetna to buy rival health insurer Humana for $37 billion|
|10 most expensive colleges|
|What a Depression looks like (Greek style)|