Investors have been scratching their heads over the past few months, wondering why the growth stocks that fueled their portfolios for most of last year are no longer climbing higher.
As the economy recovers from the novel coronavirus pandemic, money is moving out of the growth stocks that surged during the lockdown. In turn, it is now rotating into value, cyclical and industrial stocks that tend to do better when economic growth is strong.
In fact, many of the best performing technology stocks are being supplanted as institutional investors turn their focus to the reopening play. And this is a trend that is likely to continue as the Covid-19 vaccine roll out accelerates.
So, with all of that in mind, there are a few growth stocks that are slowing down right now. They are:
- Tesla (NASDAQ:TSLA)
- FedEx (NYSE:FDX)
- Facebook (NASDAQ:FB)
- Restoration Hardware (NYSE:RH)
- Amazon (NASDAQ:AMZN)
- Albemarle (NYSE:ALB)
- Novavax (NASDAQ:NVAX)
Now, let’s dive in and take a closer look at each one.
Growth Stocks That Are Slowing Down: Tesla (TSLA)
Say it ain’t so! After being one of the best performing stocks for more than a year, and defying an army of short-sellers, electric vehicle (EV) maker Tesla looks to be finally slowing down. In February 2020, just before the pandemic struck, TSLA stock was trading at $180 per share. It then ran up 400% to a 52-week high of $900.40 reached this January.
Since cresting at $900 a share, Tesla stock has fallen 22% in recent weeks, bouncing around $850 before falling to under $800 a share. It’s now trading at $690 per share and looks to be sagging. The decline has been caused by a number of factors. The company recently disclosed a stake in cryptocurrency Bitcoin, has been hit with massive recalls of its vehicles in the U.S. and Europe over a variety of safety issues, and faces rising competition from both upstart and legacy automakers, all of whom are pushing aggressively into electric vehicles.
So, is the party over for Tesla shareholders? Not yet. While a pullback is clearly underway and the naysayers are cheering for TSLA stock to fall further, many professional traders remain bullish on the company and its future. Cathie Wood, the head of Ark Invest exchange traded funds (ETF) recently said that she remains confident in Tesla and has been adding to her positions in the stock. Goldman Sachs also upgraded the stock to “buy” from “neutral” and raised its price target on the shares by 40%.
Delivery and logistics giant FedEx had been on fire since last spring, but seems to now be cooling off. FDX stock rose 240% from its low last March to a peak of $305.66 this past December at the height of the holiday shipping season. Since then, FedEx’s share price has declined 14% and now trades at $253.56. And the stock was as low as $235 a share at the end of January.
While many analysts are screaming that the market is wrong to send FDX stock lower, the company is struggling against expectations that its shipping and delivery business likely peaked during the November through December holiday period and is now slowing in the early part of 2021. Shareholders will be hoping that FedEx’s earnings will outperform expectations and help the stock rebound.
Going forward, FedEx will also have to shake the view that it is a stock that outperformed during the coronavirus lockdown and will underperform as life returns to normal.
Growth Stocks That Are Slowing Down: Facebook (FB)
Facebook isn’t the only FAANG stock to slump in recent months, but its decline has been among the steepest of the leading tech giants. After running up 108% since last March and peaking at $304.67 per share in August, FB stock slid 20% to $245 in January. The share price has since bounced up to $265, but remains well off its 52-week high.
Facebook, once a reliable growth stock, has a legion of problems that are well-known. Online advertising that comprises the majority of the company’s revenue has been hard hit by the pandemic, its social media platform is seen as a purveyor of online hate, and the U.S. politicians and regulators are considering breaking up Facebook to lessen its social media dominance.
That said, a rebound in online advertising spending could help FB stock. But the company and its share price still have a long way to go to get out of their current slump.
Restoration Hardware (RH)
Upscale furniture retailer Restoration Hardware was firing on all cylinders during the pandemic. The California-based company saw robust sales as people sheltering-in-place worked on improving their home environment. RH stock responded strongly, rising 555% from a low of $80 per share last March to a 52-week high of $524.22 earlier this month.
The stock has traded relatively flat the past two months. And overall, nothing seems to be particularly wrong with the company. Restoration Hardware continues to post strong earnings results and has forecast annual revenue growth of 10% to 15% through 2030.
This appears to be a case of investors taking a breather to see where Restoration Hardware goes after a year of incredible growth. Continued strong earnings should push RH stock higher in coming months. At around$500 per share, the stock may also become a candidate for a stock split.
Growth Stocks That Are Slowing Down: Amazon (AMZN)
Amazon wasn’t just among the best-performing growth stocks last year, the company became the online retailer became the poster child for business during the pandemic as people locked down at home turned to Amazon in troves to ordered item and have them delivered to their front doors. The massive move to online shopping led Amazon to report blockbuster quarterly results and AMZN stock to more than double (up 110%).
But since reaching $3,552.25 per share, AMZN stock has deflated by 9% and has largely been trading sideways at $3,317.60 since September of last year. This despite the fact that Amazon reported sales in the fourth quarter of 2020 rose 44% to $125.6 billion, blowing away analyst forecasts.
News that long-time Amazon Chief Executive Jeff Bezos is stepping down in the third quarter of this year and will be replaced by Andy Jassy, the head of the company’s cloud computing unit, doesn’t seem to have instilled confidence among investors. Reports that expenses related to coronavirus safety protocols will cost Amazon $2 billion in expenses also hasn’t been well-received.
Ouch! On paper, ALB stock should be performing a lot better than it has been this year. As the world’s largest producer of the lithium that powers electric vehicle batteries, one would assume that Albemarle’s stock would be going gangbusters. But after running up 66% in the past year, the company’s share price is now in retreat, falling 18% from its 52-week high to its current price of $154.10 a share.
The decline in ALB stock intensified after the company released fourth-quarter earnings that showed sales fell 11.4% year-over-year, while net income declined 6.4%, and adjusted EBITDA was down 25% compared to the final quarter of 2019. Earnings per share came in at $1.17, better than the $1.10 per share anticipated by analysts but down by nearly a third from the previous year’s results. Worse, Albemarle warned investors that its earnings outlook for 2021 is unlikely to improve, prompting many to hit the “sell” button on this stock.
The big issue facing Albemarle is not demand but rather the slumping price of lithium. And with prices trending lower, it’s squeezing the company’s profit margins. However, given the accelerated move to electric vehicles among automakers, the downcast outlook for Albemarle can’t last long, right?
Growth Stocks That Are Slowing Down: Novavax (NVAX)
NVAX stock is prone to big swings higher and lower. But ever since the Maryland-based pharmaceutical developer announced that its coronavirus vaccine showed an efficacy rate was 89.3% in clinical trials, the share price seems to have petered out. After hitting an all-time high of $331.68 on Feb. 9, Novavax stock has fallen 23% and is now struggling to stay above $240 per share.
Of course, Novavax has had an astounding run. Even among the best performing growth stocks, Novavax has stood out. This time last year, NVAX stock was worth $8 per share. It grew more than 3,000% in the last 12 months. And with that kind of appreciation, a pullback and breather is probably healthy.
Much of the recent decline can be attributed to profit taking. Investors are concerned that Novavax’s coronavirus vaccine is coming to market after rival vaccines from Moderna (NASDAQ:MRNA) and Pfizer (NYSE:PFE). Also, Novavax’s efficacy rate, while strong, was lower than competing vaccines. That said, the Novavax vaccine has shown positive results against new strains of the Covid-19 virus, and its vaccine is easier to store and transport than other vaccines.
On the date of publication, Joel Baglole held long positions in TSLA, FDX, FB, ALB 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.