The market is finally showing signs of volatility. And there’s a good chance, that if it lasts, it could get pretty wild.
With Washington heading toward what looks like its own political civil war, Wall Street is sensing that all its hopes for tax reform, infrastructure spending and healthcare reform may be much further away than they thought at the beginning of the year.
Uncertainty is the market’s kryptonite. And we’re starting to see what volatility looks like after nearly a decade of stability.
This is no time for you to search for comeback stocks or to go bottom fishing. The following list highlights six tech stocks that are showing cracks, and most have already started to swoon.
Crumbling Tech Stocks: ViaSat (VSAT)
ViaSat, Inc. (NASDAQ:VSAT) is in the broadband business via its satellite technology. In early June, VSAT launched its ViaSat 2 satellite and is now positioning it in geostationary orbit.
It serves consumers, governments, airlines and companies with download speeds approaching 100 gigabits per second — a very respectable speed.
The problem, however, is the satellite internet market. It’s just not a big growth opportunity since the speeds will never reach those of fiber optics. Plus, you can lay a lot of fiber optic cable for what it costs to build, launch and maintain a satellite.
Earlier this month, VSAT reported first-quarter fiscal-year earnings, confirming that it’s having trouble in the space as competition heats up. And while the rest of year looks better, it’s not by enough to revive the stock. Off 11% in the past month, there’s more downside left.
Crumbling Tech Stocks: Cree (CREE)
Cree Inc (NASDAQ:CREE) is a North Carolina-based leader in light emitting diode (LED) lighting. But CREE’s technicals are not helping CREEstock. It’s trading below both its 200-day and 50-day moving averages and that trajectory isn’t changing.
With its FYQ4 earnings release coming later this month, the only hope it has to change direction is a surprise on the earnings front. But that’s not likely. Considering the increasing competition in the sector, it’s hard to see where CREE has a unique market position.
Maybe an acquisition will be in the offing at some point, but it won’t go off at a big premium.
At this point, with CREE stock down almost 13% year-to-date and trending lower, there are better options.
Crumbling Tech Stocks: Acacia (ACIA)
Acacia Communications Inc (NASDAQ:ACIA) should be rolling in money right now. It sells high-speed interconnect equipment for the next generation of internet service, sending data through fiber optic and cable systems.
But its recent Q2 earnings report was not encouraging, at all. Revenue was off 32% compared to the same quarter a year ago. Every measure was off, with ebitda going negative.
The chief problem was, one of its three factory manufacturers delivered product that couldn’t be shipped due to quality issues. That problem has been sorted out, but the biggest challenge for ACIA now is whether its customer base still has confidence in the company.
There are plenty of competitors in the space right now. Q3 projections look better, but ‘back to normal’ looks further away. Off almost 30% year-to-date, this is no time to bottom fish.
Crumbling Tech Stocks: Fitbit (FIT)
Fitbit Inc (NYSE:FIT) is a classic heroic tech story. It was the prime mover of the first generation fitness tracking tech. Companies were buying them and distributing them to employees, schools were using them for their virtual PE classes for kids. They were about as omnipresent a sign that you were a tech fitness player as you could get.
What’s more, the were affordable. You could buy one for around $100, which made them far more accessible than higher end status smartwatches. It was every-man tech.
But the problem is, that first generation is fading and FIT doesn’t know where to go from here. Margins are crashing, sales are slowing and after a couple smart acquisitions, there seems to be little interest from developers to continue down the focused fitness path.
Off 83% in the past two years and 28% year-to-date, the best hope here is some big player comes in and buys FIT at a decent premium. But there will likely be more pain before that happens.
Crumbling Tech Stocks: XO Group (XOXO)
XO Group Inc (NASDAQ:XOXO) is a group of online lifestyle publications focused on Gen Xers and millennials as they transition through milestones like weddings (The Knot), moving in together (The Nest), having a child (The Bump) and throwing parties (Gigmasters).
Part content and part advertising guides, these are very next generation integrated marketing products compared to the typical print and online products that have tried to transition to the online content space.
The business seems to be chugging along with single digit growth. But there are two significant challenges at this point. First, it’s trading at a current price-earnings ratio of 64, which can’t be justified anywhere in the numbers. And second, the amount of competition in these sectors from major, established players and smaller players that are scaling up, is enormous.
Off 7%, the numbers are saying that this one has to go down before it goes up in any real way.
Crumbling Tech Stocks: Brightcove (BCOV)
Brightcove Inc (NASDAQ:BCOV) is a cloud-based video storage firm. Its business model includes selling various platforms to market, share and distribute video as well.
Its biggest current challenge is to right the ship after an unimpressive Q2 earnings report and disappointing guidance slammed the stock in early May. And then the departure of the company’s CEO in late July. The stock has trended up since the announcement of the CEO’s departure but not by much.
The larger issue is the amount of competition that is growing from major players like Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT) and Alphabet Inc (NASDAQ:GOOGL) as well as smaller niche players.
At this point, the stock is off 15% year-to-date but needs a 50% move from current prices just to get back to where it was in March. And given its less than impressive guidance, that isn’t going to happen.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.