March brought volatility for many growth-dependent companies in the Nasdaq 100 index, and many big names saw their valuations tumble. Dramatic sell-offs can sometimes present life-changing opportunities for investors. On the other hand, it's also true that stocks usually sell off for good reasons, and you can't just pour money into companies with falling share prices and expect good results.
While the overall Nasdaq 100 index has battled back thanks to strong earnings news for some stocks, many growth-dependent companies have taken a big hit since the index reached its most recent high on Feb. 12. Peloton Interactive (NASDAQ: PTON), Moderna (NASDAQ: MRNA), and Baidu (NASDAQ: BIDU) were the index's biggest losers from Feb. 12 to April 6 — with those stocks falling 29.5%, 29.3%, and 29%, respectively, across that stretch, according to data from S&P Capital IQ.
Should investors be buying up these beaten-down names? Let's find out a bit more about these three worst performers.
1. Peloton Interactive
Peloton Interactive enjoyed a huge tailwind from the pandemic in 2020. With gyms closed and social distancing in place, demand for in-home exercise equipment soared. Peloton's combination of hardware and connected-exercise services got a huge boost and enjoyed stellar growth, but March 2021 saw investors focus on which stocks look best positioned to thrive in a post-pandemic world.
Peloton was perfectly positioned to capitalize on an unexpected and unprecedented set of conditions, but as gyms start to reopen, the company's products could seem less essential to a significant section of potential customers. While it's reasonable to expect that the exercise innovator's growth might be a bit uneven in the near term, relaxing social distancing probably won't destroy its long-term opportunities.
Peloton might not be a post-pandemic recovery play, but the stock price already trades down roughly 36% from the 52-week high it hit in January, and the pullback could be overdone. The brand still looks very strong, and Peloton is a first mover in the connected exercise equipment space that still has a lot of room for growth.
The stock isn't low risk by any stretch, but the business is executing at a high level, posting impressive growth, and recording strong gross margins. For investors with a buy-and-hold approach, Peloton could still be a winner.
Moderna stock posted huge gains in 2020 thanks to the excitement surrounding the company's messenger RNA (mRNA) COVID-19 vaccine, with its share price skyrocketing 430% across the stretch. But the stock has pulled back since hitting a high of roughly $189 per share in February.
The biotech‘s share price is still up roughly 27% across 2021 even after the recent pullback. The company has contracts for $18.4 billion in COVID-19 vaccine this year, but there are questions about whether the stock's momentum from that vaccine was overdone.
It looks like the vaccine market will become more competitive as vaccines from companies like Johnson & Johnson and Novavax become more widely available. Despite the company being on track to generate big sales from vaccines in the short term, Moderna's long-term sales and earnings outlook is much less clear. The company's COVID-19 vaccine should eventually receive full approval from the FDA rather than just an emergency use authorization, and its success points to opportunities for other mRNA-based vaccines.
If you see continued opportunities with new COVID-19 vaccines and regular booster shots and are generally bullish on mRNA vaccines, the recent sell-off presents an opportunity to buy Moderna stock at a discount. But if you're uncertain on those fronts, the stock could seem too speculative to be a good portfolio fit.
For whatever strengths and growth opportunities Baidu might have, investors first have to consider how they feel about investing in Chinese tech stocks right now. It's a fraught proposition in some respects.
Like several other Chinese tech giants that are listed on U.S. stock exchanges, Baidu does not adhere to the Securities and Exchange Commission's accounting and reporting standards. A tense political backdrop between the U.S. and China is creating added risk factors for Chinese stocks, and regulatory bodies and legislators have already moved to delist some China-based tech stocks from major U.S. exchanges.
If significant exposure to risk from geopolitical issues isn't something you're open to, Baidu stock has the makings of a clear no-go. On the other hand, there's actually quite a bit to like about the company's outlook if you're willing to weather some uncertainty.
Baidu is a leader in China's search and digital advertising markets, and it looks like the segment could be poised for strong performance thanks to macroeconomic tailwinds and signs that some challenges hindering its ad business are easing. The Chinese tech giant is also an early mover in artificial intelligence and self-driving vehicle software, and it's said to be readying a big push in the electric vehicle space.
Baidu won't be a great fit for everyone. But the business is tapping into a lot of exciting trends and has many avenues to growth, and the stock could be worth it for investors with high risk tolerance.
Understanding your risk tolerance is key
On one hand, Peloton, Moderna, and Baidu each have some compelling strengths and feasible paths to long-term growth, and the stocks are trading well off their highs following recent sell-offs. On the other hand, these stocks are still relatively risky compared to the market at large, and that means they won't be a great fit for every investor.
Before you make substantial investments in stocks that are seeing volatile trading and uncertain business conditions, it's important to realistically assess how much risk you're willing to tolerate. From there, you'll be able to make much better determinations about which companies to add to your portfolio.
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Keith Noonan owns shares of Baidu. The Motley Fool owns shares of and recommends Baidu and Peloton Interactive. The Motley Fool recommends Johnson & Johnson and Moderna Inc.. The Motley Fool has a disclosure policy.