4 stocks that rocked the market in January
January was a wild month for the stock market as a whole. A sharp correction led by growth stocks dragged the main indices down. It’s hard to pinpoint a small handful of stocks that moved the market when volatility was so high across the board. Still, a look at some of the biggest companies that have seen the biggest swings reveals some important trends in the market right now.
Rivian Automotive (NASDAQ: RIVN) is an electric vehicle (EV) stock that sent investor fever skyrocketing before crashing. It was down 37% last month. The market has been excited by the prospects of a high quality disruptive competitor for You’re here (NASDAQ: TSLA). In particular, Rivian seemed to have an opportunity to carve out a niche in trucks and vans. None of the EV competitors have yet distinguished themselves in these vehicle categories. It also benefited from the support of Amazon (NASDAQ:AMZN) in the form of investments and provisional orders.
Rivian is a quintessential hype stock that soared with momentum, then crashed as investors refocused on fundamentals. The company has a bright future and a lot of potential, but it only produced 1,000 vehicles in the fourth quarter. Even taking into account the company’s 70,000 pre-orders and its annual production capacity of 600,000 vehicles, it’s hard to justify its previous valuation of $120 billion. In comparison, Ford (NYSE:F) is an established $80 billion global company that sold 500,000 vehicles in the last quarter alone.
Rivian’s entire investment thesis is built on potential. Growth stocks like this are understandably crushed as investors turn away from risky assets.
netflix (NASDAQ:NFLX) is experiencing an entirely different challenge that sent stocks tumbling 29% in January. The stock’s price-to-sales ratio has risen steadily over the past decade as its streaming service has grown into a juggernaut that has completely changed mainstream entertainment. Its valuation ratios peaked a few years ago, when it was commonly referred to in the same breath as tech giants Metaplatforms (NASDAQ:FB), Apple (NASDAQ:AAPL), Amazonand Alphabet (NASDAQ:GOOGL).
Competition has increased from all angles over the past few years, and Netflix’s latest quarterly earnings report indicates a drastic slowdown in subscriber growth. Investors fear Netflix is approaching saturation in key markets and may not have a lasting economic moat. At a minimum, the streaming giant will have to spend a lot on content to keep up with the 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 has aligned itself with some of its big tech peers.
Netflix is still more buoyant than a typical blue-chip dividend stock, but that could be an early sign of the transition from growth to value stocks are finally enduring.
For much of 2020 and 2021, Modern (NASDAQ:ARNM) the stock increased due to its COVID-19 vaccine and its new mRNA technology which may be applied to other infectious diseases in the future. Its valuation has gone a bit too far and things have deteriorated as the global health situation has changed.
Moderna’s products are found to be less effective against new strains of the coronavirus. At the same time, other treatment options are being developed as patient outcomes improve for globally dominant strains. This all equates to lower demand for Moderna’s current money generator, and the stock fell 33% in January as a result.
Moderna has other interesting projects, but its current fundamentals are mostly tied to a stalled product. Other “pandemic stocks” are in the same boat. It’s a tough place to be in today’s market.
There are old pillars on the other side of the coin. ExxonMobil (NYSE:XOM) climbed 24% last month as oil prices rose. Rising oil prices pushed stocks across the energy sector higher, which was one of the main bright spots in January. ExxonMobil shareholders also benefited from some expansion in the valuation ratio. The stock’s forward PE, price-to-sales, and enterprise value-to-EBITDA ratios all increased by 20% to 30%. This signals momentum and investor interest, not just fundamental improvement.
The energy sector has endured a few difficult 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 spots. If oil prices hold, this could be a continuing trend.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.