There is a certain comfort factor in owing the same stocks everyone else does, and companies like EBAY and AMZN that are being talked about every day on the financial new networks. That’s not necessarily a bad thing, as many of the really hot stocks are those that have the type of superior fundamentals that attract buying pressure form the large institutions and hedge funds.
However, some tech stocks have deteriorating fundamentals … and while the story still sounds good the fundamentals are not of the quality that will justify continued upward movement.
No matter how exciting and popular a stock is, you still need to use Portfolio Grader to make sure the company actually deserves all the attention.
Amazon (AMZN) has been a market darling for years now. The company keeps growing revenues and adding businesses that make it seem like a great growth company. The story behind AMZN stock has always been about revenues, and how eventually the profit growth will begin to show up. It has not worked at all, and Amazon has posted two negative earning surprises in the last year. While sales growth over the past five years has been an impressive 31%, profits have actually fallen over the same time frame. Investors should avoid the urge to bottom fish the stock until the fundamentals actually improve. Amazon is ranked D by Portfolio Grader and is a sell at the current price.
EBay (EBAY) attracted a lot of media coverage and investor attention during its dispute with activist investor Carl Icahn, and lots of investors tried to piggyback Mr. Icahn’s buying into EBAY stock. But eventually, the fundamentals were more accurately reflected in the stock price and the shares started to move lower. eBay’s most recent earnings report was in line with analyst expectations but eBay also lowered its guidance for the second quarter. To compete in the crowded on line marketplace the company repatriated some $9 billion of cash from overseas that will be subject to U.S. taxes for the first time. Business is just okay at eBay, but it does not have the superior fundamentals we look for in a true growth stock. Portfolio Grader downgraded eBay stock last month to D and is a sell at the current price.
Just because there is a stock story that sounds good and a particular stock is attracting lot of attention does not mean it is a great buy. Always check the fundamental and quantitative rating form Portfolio Grader before jumping into the stocks everyone is talking about.
Louis Navellier is the editor of Blue Chip Growth.