January was a wild month in the stock market as a whole. A sharp correction led by growth stocks dragged major indexes lower. It’s hard to point to a small handful of stocks that moved the market when volatility was so high across the board. Still, a look at some of the larger companies that had the biggest swings reveals some important trends in the market right now.
Rivian Automotive (NASDAQ: RIVN) is an electric vehicle (EV) stock that rode investor fervor sky-high before tumbling. It was down 37% last month. The market was excited by the prospects of a high-quality, disruptive rival to Tesla (NASDAQ: TSLA). In particular, Rivian seemed to have an opportunity to carve out a niche in trucks and cargo vans. None of the EV competitors have distinguished themselves in those vehicle classes yet. It also had support from Amazon (NASDAQ: AMZN) in the form of investment and tentative orders.
Rivian is a quintessential hype stock that climbed higher with momentum, then collapsed when investors refocused on fundamentals. The company has a promising future and lots of potential, but it only produced 1,000 vehicles in the fourth quarter. Even taking into consideration the company’s 70,000 pre-orders and 600,000-vehicle annual production capacity, it’s hard to justify its previous $120 billion valuation. In comparison, Ford (NYSE: F) is an established, global, $80 billion company that sold 500,000 vehicles last quarter alone.
Rivian’s entire investment thesis is built on potential. Growth stocks like this one are understandably getting crushed as investors turn away from risk assets.
Netflix (NASDAQ: NFLX) is experiencing a whole different challenge that drove shares 29% lower in January. The stock’s price-to-sales ratio climbed steadily over the past decade as its streaming service grew into a juggernaut that completely changed consumer entertainment. Its valuation ratios peaked a few years ago, when it was commonly mentioned in the same breath as tech giants Meta Platforms (NASDAQ: FB), Apple (NASDAQ: AAPL), Amazon, and Alphabet (NASDAQ: GOOGL).
Competition has risen from all angles over the past few years, and Netflix’s most recent quarterly earnings report indicates a drastic slow-down in subscriber growth. Investors are concerned that Netflix is nearing saturation in key markets, and it might not have a sustainable economic moat. At a minimum, the streaming giant will have to spend heavily on content to keep up with competition.
As growth stocks mature, they eventually become value stocks. Value stocks tend to be more stable, but they don’t command the same valuation ratios. Netflix came in line with some of its large tech peers.
Netflix is still more dynamic than a typical blue-chip dividend stock, but this could be an early sign of the transition from growth to value that stocks eventually endure.
During much of 2020 and 2021, Moderna (NASDAQ: MRNA) stock shot higher due to its COVID-19 vaccine and novel mRNA technology that could be applied to other infectious diseases in the future. Its valuation ran a bit too far, and things came tumbling down as the global health situation changed.
Moderna’s products are proving less effective against new strains of the coronavirus. At the same time, other treatment options are being developed, while patient outcomes are improving for the globally dominant strains. That all equates to diminished demand for Moderna’s current money maker, and the stock fell 33% in January as a result.
Moderna has other interesting projects, but its current fundamentals are essentially tied to one product that’s losing steam. Other “pandemic stocks” are in the same boat. That’s a tough place to be in today’s market.
There are old stalwarts on the other side of the coin. ExxonMobil (NYSE: XOM) climbed 24% last month as oil prices rose. Higher oil prices sent stocks higher across the energy sector, which was one of the major bright spots in January. ExxonMobil shareholders also enjoyed some valuation ratio expansion. The stock’s forward PE, price-to-sales, and enterprise-value-to-EBITDA ratios all rose 20% to 30%. That signals momentum and investor interest, not just fundamental improvement.
The energy sector has endured a rough couple of years. Even after last month’s pop, many of these stocks still have cheap forward PE ratios and high dividend yields. As investors flee growth stocks in favor of value, these are common landing places. If oil prices hold up, this could be an ongoing trend.
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