Last month ended up being a pretty good one for the market, with the Nasdaq Composite bouncing back from February’s 3% stumble to log a gain of a little more than 3% in March despite this past week’s weakness. That still leaves it well below January’s high, but at least things are generally moving in the right direction again.
Not every Nasdaq-listed name, however, is participating in the rekindled rally. Indeed, a bunch of its stocks continue to sink, leaving long-term-minded investors with a choice: Do I buy while these stocks are still cheap, or is this weakness likely to last at least a little while longer?
There’s never a super-easy answer to the question. At this particular time though, the question is especially vexing.
What went wrong
If you’re wondering, last month’s biggest large-cap Nasdaq losers are Grab Holdings, Upstart (NASDAQ: UPST), Rivian Automotive (NASDAQ: RIVN), and Huazhu Group, suffering losses of 39%, 31%, 20%, and 21%, respectively. Dishonorable mentions also go the fifth-, sixth-, and seventh-place large-cap laggards Pinduoduo, JD.com, and Okta (NASDAQ: OKTA), down 23%, 19%, and 17% (again, respectively) in March.
There’s something of a theme buried in the data. Pinduoduo, JD, and Huazhu are Chinese stocks, up-ended by country-specific pandemic turbulence that also up-ended nearby Singapore-based Grab Holdings; Grab ran into some company-specific problems of its own too, like a disappointing quarterly report and the exit of a key executive.
As for Rivian, Upstart, and Okta though, their pullbacks require something of an explanation.
Shares of electric vehicle maker Rivian continued a sell-off that first took shape all the way back in November shortly after it IPO’d, drifting lower on growing worries that it’s not ready to manufacture automobiles at scale. Supply chain problems and Mizuho’s lowered price target helped nudge the stock in a bearish direction as well, although given that most newly minted stocks fail to live up to their pre-IPO hype, it’s arguable this weakness could have been expected anyway.
Okta’s pullback has completely different roots. The cloud-based cybersecurity/login-management platform was (ironically) hacked itself, calling into question just how well it’s able to securely do what it does.
Upstart peeled back because…well, you won’t find much of a reason shares of this alternative consumer credit-scoring company sold off, other than profit-taking. This stock soared in the latter half of last year, and then gave all of those gains back. Now the market’s in wait-and-see mode with this high-growth organization. It just so happens that there’s plenty of room for wild swings while investors are waiting for the next chapter in its story.
To buy or not to buy?
The question remains, however: Are any or all of these stocks buys following March’s losses?
The answer is a general no.
That’s not necessarily always the answer, mind you. Sometimes, the market makes an obvious mistake, selling off shares of a company that’s doing well, setting the stage for a bounce sooner than later. That was certainly the case less than a month ago when MongoDB, DraftKings, and Zebra Technologies were among the Nasdaq’s worst performers. All three are much higher now than they were then.
The nature of the biggest pullbacks, then, is different than it is for the current ones, however. Then, the trading crowd appeared to be in something of an unmerited panic at least partially bolstered by Russia’s invasion of Ukraine. Now, investors appear to be thinking things through, in response to facts and specific headlines.
There’s no better evidence of this idea than that provided by Rivian.
While it’s exciting to think that Tesla might actually face some competition, Rivian will struggle to become that next key competitor. While the company has hired veteran contract-manufacturing executive Frank Klein as its COO, any automobile manufacturer capable of making electric vehicles at the scale Rivian would like to achieve is likely already making EVs of their own. There are also whispers circulating that chipmakers are hesitant to partner with the relatively unproven electric manufacturer. Makes sense.
Okta is another example where investors’ doubts are completely understandable, and for that matter, ditto regarding doubts about the future Pinduoduo and Huazhu face. China’s been clamping down on many of its tech companies, while recent pandemic-prompted lockdowns remind us that lodging plays like Huazhu are far from being out of the woods yet. It’s plausible that the COVID-19 pandemic may never truly end, but instead mutate as it meanders, prompting ongoing lockdowns as needed.
These aren’t the bigger-picture things that were nagging at most investors less than a month ago.
Adjust your gut as needed
None of this is to suggest owning any of these stocks will prove disastrous. They may well bounce back soon, following the broad market higher. If you feel comfortable with your justification in owning them or buying them now, it’s certainly possible you’ll be well rewarded for your fortitude.
Every now and then though, it’s smart to take a step back and check the market’s temperature.
See, the trend isn’t the only thing always changing. The market’s underpinnings are forever changing too. Sometimes it makes sense to scoop up the market’s most beaten-down stocks just because they’ve been beaten down. Other times it doesn’t. This is one of those times it doesn’t. In the current environment, stock-picking should be done on a case-by-case basis even more than it usually is.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool owns and recommends Grab Holdings Limited, MongoDB, Okta, Tesla, Upstart Holdings, Inc., and Zebra Technologies. The Motley Fool has a disclosure policy.