Is it time to buy the 4 worst performing October stocks on the Nasdaq?
A difficult month of October for some Nasdaq index‘The biggest names may have created an opportunity for investors. The four stocks covered here recorded more than $ 30 billion in combined market capitalization losses last month. If you’ve been wanting to buy these hot stocks for a bargain, this might be your chance.
Be careful, however, don’t ignore the warning signs the market is spreading. It is not because a stock becomes cheaper that it is doomed to return to growth.
Novavax‘s (NASDAQ: NVAX) The stock price fell 28.2% in October as investors soured even further over the company’s inability to capitalize on its coronavirus vaccine due to manufacturing issues. Novavax developed a vaccine that obtained favorable results in a Phase 3 clinical trial in January, but failed to sell any units in the United States after failing to obtain clearance from the Food and Drug Administration (FDA) American. Competitors in the US market have already received full clearance from the FDA, so it is unlikely to ever be a major factor in one of the world’s largest markets.
Granted, there was a lot of wasted potential here. Difficulties in sourcing raw materials have cost Novavax billions of dollars. However, there are signs that it has taken a step forward – Novavax recently completed regulatory filings in the UK and Australia. This follows the announcement earlier this year that the European Commission would purchase 200 million doses of the vaccine from Novavax. Most of the financial opportunity in the United States may have already passed, but huge numbers of people around the world are still waiting to be vaccinated.
Analysts are forecasting earnings per share (EPS) of at least $ 12.50 for Novavax next year. The resulting 15.6 futures price-to-earnings ratio (PE) seems like an overwhelming assessment in today’s market, but there is still a lot of uncertainty over the medium term. Even if it crushes next year’s earnings estimate and pushes up stock prices, cash flow could dry up quickly afterwards. Novavax is a big question mark for long term investors.
Free Mercado (NASDAQ: MELI) the stock price fell 11.8%, although it did not release any bad news. MercadoLibre is an electronic commerce powerhouse. It is the largest online retailer in Latin America and it also has an e-commerce platform that supports digital stores for other retailers. MercadoLibre has also entered the fintech fray by deploying banking and payment services.
During its last quarter, MercadoLibre doubled its revenue while increasing its number of active users by almost 50% to 76 million. Its operational results are certainly impressive, and its outlook is just as strong. So why did MercadoLibre stock take a hit in October? It appears to be simply a case of investors responding to aggressive valuations in times of uncertainty.
Retail inventories are reporting mixed results for the third quarter earnings season, with supply chain issues driving higher spending. Amazon was among the prominent names that raised concerns about short-term disruptions. MercadoLibre stock has a price-to-sell ratio greater than 14. This is normal for growth stocks that prioritize rapid growth over earnings, but any slowdown can cause stock prices to fall.
If you already liked the long-term outlook for MercadoLibre, it got a lot cheaper without the fundamental story changing. Don’t be shocked if there is more short term volatility.
3. Robinhood Markets
Robinhood Markets (NASDAQ: HOOD) is a fintech unicorn that has met its fair share of controversy over the past year or so. The stock trading platform has established itself as a no-cost online brokerage that quickly racked up over 20 million users. Robinhood has made it possible for anyone to become an investor in stocks or crypto, regardless of income or level of wealth. However, concerns were expressed that the company was executing transactions and sharing data unfairly to users.
The share price fell nearly 17% in October amid a disheartening earnings report. Revenue increased 35% year-on-year, slowing down from previous periods. Even more annoying, the number of active users fell by more than 10% compared to the previous quarter. These numbers are not good enough for growth investors who have offered the stock high enough for the price-to-sell ratio to exceed 17.
Robinhood has been an innovative fintech force, but it might struggle to maintain the growth rates needed to justify its valuation. It operates in a highly competitive environment, it has betrayed the trust of many users over the past year, and it is losing some of the momentum previously provided by memes stocks and crypto trading. Approach it with caution.
Moderna (NASDAQ: mRNA) has been one of the hottest healthcare stocks after developing a COVID-19 vaccine and winning several big supply contracts. However, the share price fell 10.3% due to a combination of increased competition, security concerns and aggressive pricing. It actually fell about 20% over the month before reversing some of those losses. Investor sentiment improved after an FDA panel of experts recommended the use of booster vaccines.
Moderna shares have returned over 2,000% since the start of 2020, driving valuations so high that it’s difficult to sustain those gains. Much like Novavax, Moderna is expected to have a year or two of great results, but there is great uncertainty after that. The 10% price adjustment did little to eliminate the downside risk.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.