Things are changing quickly in the stock market. For investors, that means it is important to be careful with short-term stocks.
News of effective vaccines against Covid-19 from pharmaceutical companies Moderna (NASDAQ:MRNA) and Pfizer (NYSE:PFE) have prompted an abrupt shift. In just a few days, money has flown away from stay-at-home stocks and leading technology names. Now, investors are returning to cyclical stocks and equities that will rise once a vaccine is widely available and the global economy fully reopens. This shift is benefitting stocks of banks, airlines, resorts, cruise lines and restaurants while it is hurting stocks that have been stars since the pandemic shut things down in March. Companies such as Zoom Video (NASDAQ:ZM) and Shopify (NYSE:SHOP) have fallen sharply.
With this in mind, we will look at seven short-term stocks that investors should view carefully as we close out 2020 and head into 2021.
- Peloton (NASDAQ:PTON)
- JD.com (NASDAQ:JD)
- Fastly (NYSE:FSLY)
- DocuSign (NASDAQ:DOCU)
- Netflix (NASDAQ:NFLX)
- Domino’s Pizza (NYSE:DPZ)
- Las Vegas Sands (NYSE:LVS)
Short-Term Stocks: Peloton (PTON)
With gyms and fitness clubs closed because of Covid-19, shares of exercise bike and treadmill manufacturer Peloton took off. In fact, they rose an astounding 609% from $20 a share in March to $140 a share in mid-October. It made sense given that sales of Peloton’s exercise equipment skyrocketed as people set up home gyms and switched to at-home fitness. The company’s recent fiscal fourth-quarter sales surged 172% from the previous year.
My how things have changed. Since peaking on Oct. 15, PTON stock has fallen to $110 a share. The stock fell more than 20% on the day Pfizer announced its Covid-19 vaccine is more than 90% effective. And it is not just the reopening of gyms that has investors selling Peloton stock. The company raised eyebrows with its fourth-quarter results when it flagged that its supply chain is under intense pressure and that it will struggle to fill orders going forward.
Investors may want to hold Peloton stock through the busy holiday sales period, but should look to sell in early 2021 as mass vaccination against Covid-19 begins.
JD.com is one of the riskier Chinese e-commerce companies. The online retailer has had a rocky year. What do I mean? Well, JD stock has more than doubled since March, up 146% to $86.77. But it has been a rocky road with several pullbacks along the way.
The stock has been at its current level, or higher, on three separate occasions since August. Tense relations between Beijing and Washington, as well as scandals at other publicly traded Chinese companies have kept investors on edge. Investors were also spooked when JD.com declined to provide any future guidance when announcing its latest earnings and top-line results missed analysts expectations.
As a result, JD stock has been trending downwards recently, down 7% since the start of November. The company saw strong online sales at the height of the pandemic in China, but those sales are starting to revert to pre-pandemic levels now that China is reopening. Investors looking for a long-term investment in a Chinese e-commerce giant may want to look at JD.com rival Alibaba (NYSE:BABA), which also has a huge online retailing presence. Importantly, Alibaba is also involved in everything from artificial intelligence to cloud computing.
It will be interesting to se if relations between the U.S. and China soften under the administration of President-elect Joe Biden. But investors should be ready to jump out of JD stock in a hurry if it continues trending in the wrong direction.
Short-Term Stocks: Fastly (FSLY)
Things have taken a turn for the worse for cloud computing company Fastly.
After peaking at $136.50 a share in mid-October, FSLY stock has tumbled to $83. The drop comes even though cloud computing is one of the hottest and fastest-growing segments of technology right now. So what happened?
Well, the downturn for Fastly came after the company lowered its guidance in October, stating that it now expects to produce revenue between $70 million and $71 million for the quarter, down from a previous range of $73.5 million to $75.5 million. At the midpoint of the new range, revenue will grow 41% year-over-year, a substantial slowdown from 62% in the second quarter. The lowered guidance is largely thanks to slowing demand from its largest customer, ByteDance. Why? ByteDance is the parent company of TikTok, which is stuck in the crosshairs of the U.S. government.
The TikTok slowdown particularly hurts, as the social media platform accounts for 12% of its revenue. However, the company also recently said it is seeing a slowdown in usage of its cloud computing services among other smaller customers. This has scared off many investors, which is why FSLY stock continues to fall. Analysts who cover the company now have a median price target of $80 a share, just slightly below where it currently trades. The high estimate on Fastly stock is $90 a share, far from its 52-week high of more than $135 a share.
Whether Fastly will be able to recover is unclear. But for now, investors should not take a long position in this stock.
DocuSign is another high-flying stay-at-home stock that has struggled lately. The California-based company that allows organizations to manage contracts and agreements electronically using e-signatures was on top of the world through the end of the summer. Its stock rose 324% from its March low to a high of $290.23. But the good times ended on Sept. 1. Since then, DOCU stock has declined nearly 20% to $221. Like other stocks that thrived during the height of the pandemic, DocuSign suffered the day Pfizer announced the efficacy of its Covid-19 vaccine.
Investors were left asking: What now?
Other issues plaguing DOCU stock right now include debt of $479.1 million, up from $451.9 million in 2019, and liabilities that outweigh the sum of its cash and receivables by $635.8 million. Many analysts have questioned the health of its balance sheet. Importantly, DocuSign did report revenue of $1.2 billion as part of its most recent quarterly results. However, the company has yet to report any earnings before interest and taxes.
While some shareholders remain hopeful that DocuSign will eventually become profitable, the current situation and near-term prospects facing the company as Covid-19 moves into the rear-view mirror make this stock a definite short-term holding.
Short-Term Stocks: Netflix (NFLX)
There was a time when Netflix was the only streaming name in town. Not anymore. The once-dominant streaming service now faces a ton of competition from Disney (NYSE:DIS), Apple (NASDAQ:APPL) and Amazon (NASDAQ:AMZN), among many other options.
Netflix went gangbusters during the lockdowns this past spring, adding 26 million new subscribers globally during the first six months of the year — more than double the number added from January to June of 2019. But the company recently stated that its subscriber growth is now cooling off — adding only 2.2 million new subscribers during the summer months. Once the economy fully reopens and people begin returning to work at the office, growth is likely to slow even more.
This reality is reflected in the recent performance of NFLX stock. After increasing 92% to a 52-week high of $575.37 a share, the stock has slid in recent weeks to $490. The company’s prospects and those of its shareholders have been further hurt by the fact that production on new television shows and movies has been halted during the pandemic. While Netflix is now ramping production up again, it faces increasing competition and pressure to continue producing hit shows that will drive subscriptions.
Consider that Disney+ has racked up nearly 75 million subscribers since it launched 12 months ago, and it becomes clear that Netflix’s days of domination are likely coming to an end. Investors may want to take profits sooner rather than later.
Domino’s Pizza (DPZ)
Pizza chain and delivery juggernaut Domino’s made plenty of hay while the sun shone during the Covid-19 pandemic. But dark skies are now threatening its outlook.
The company recently reported fiscal third-quarter results that showed strong sales growth and surging profits. Its success with home delivery during the pandemic pushed its revenues up 17.5% from 16.1% growth a quarter earlier. Earnings per share rose almost 22% to $2.49. Yet, despite these results, investors pushed the stock lower in anticipation of heightened competition and reduced demand as the pandemic comes to an end.
After peaking at $435.58 a share in October, DPZ stock has pulled back to now trade at $390. The share price is likely to come under increasing pressure as people gain access to Covid-19 vaccines, restaurants reopen and people return to dining in. Rising competition in the pizza delivery sector is also of concern to analysts and investors. While Domino’s is not going anywhere, its great run of 2020 looks to be coming to an end.
Investors should be prepared to let go of this stock in the short term if its share price continues to sink.
Short-Term Stocks: Las Vegas Sands (LVS)
A lot of investors are now turning to stocks that will benefit from the great reopening in 2021. And this includes resorts and casinos, which have been rising in recent weeks. But one casino stock investors should tread carefully with is Las Vegas Sands.
LVS stock remains 25% below its 52-week high at its current price of $55.90 a share. Additionally, its movement lately has been sluggish. On Nov. 17, shareholders of Las Vegas Sands filed a class-action lawsuit against the company alleging that senior executives made misleading statements and that some casino properties have been used to illegally launder money. Not good. Analysts have long raised concerns about Las Vegas Sands properties in mainland China where the rule of law is known to be lax and where illicit activities can occur.
However, the company looks to be doubling down on China as it considers selling its flagship casinos in Las Vegas for about $6 billion so that it can concentrate its casino portfolio entirely in Macau and Singapore. Only time will tell if this is a wise move. But regardless, investors should be cautious. Unloading all of its U.S. properties while fighting an aggressive shareholder lawsuit is a lot for any company to take on. And there are many other resort and casino stocks that investors can buy to capitalize on the reopening catalyst. That is why LVS is one of the short-term stocks you should handle with caution.
On the date of publication, Joel Baglole held a long position in DIS, APPL, BABA and MRNA.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.