Zillow bubble investors get pricked … how to avoid these scars in your own portfolio … a special event happening today at 4 PM ET with Louis Navellier
A loss of 38% over just three days.
That’s what Zillow investors suffered at the beginning of this month, as you can see below.
It’s gotten worse. As I write Tuesday morning, Zillow’s stock is down 41% from its price before the crash.
Dazed Zillow investors must be re-thinking their strategy. After all, just to get back to that pre-crash level, the stock has to soar more than 65% from here.
***So, what happened? And more importantly, is there a lesson we can use to protect our own portfolios?
Here’s legendary investor, Louis Navellier, to help us begin to answer these questions:
(Zillow) hit its all-time high in February. The real estate market was red-hot, and investors were excited after Zillow posted its third profitable quarter in a row, with revenue up over 70% year-over-year in the second quarter.
But the reality is investors had gotten ahead of themselves, and Zillow found itself in a bubble.
That bubble was pricked the first week of November, due to the fallout from the company’s failure in its house-flipping business, iBuying. It ended up being a major flop for Zillow, resulting in a nearly $381 million loss in its Homes segment and a write-down of about $304 million within that segment in the third quarter…
As a result, the company’s profitability faced challenges in the third quarter.
Zillow achieved revenue of $1.74 billion, with 165% year-over-year growth, but missed analysts’ estimates by $269 million. Earnings per share missed analysts’ estimates by $1.11, with the company reporting a loss per share of -$0.95.
In the wake of this disappointment, Zillow’s stock tanked.
This is a classic “bubble prick” story. Unfortunately, it happens frequently, leaving a string of deeply scarred portfolios in its wake.
***How might an investor have recognized this as a bubble and steered clear?
By focusing on something that’s at the heart of Louis’ approach to the markets…
Fundamentals.
Louis illustrates this with one of his recommendations from his newsletter, Breakthrough Stocks:
My Breakthrough Stocks do not trade at bubble valuations, and tend to benefit from the rotation out of some of the frothy stocks.
Case in point: Inmode Ltd (INMD), which is a nice feather in our cap at Breakthrough Stocks.
As you can see in the chart below, its trading action in the first three months of the year is actually quite similar to Zillow’s.
Zillow even surpassed INMD in February for a short time. However, there’s one key difference: It has the fundamentals to back up the stock’s climb higher and keep it moving higher over the longer term.
Source: StockCharts.com
***So, what accounts for the difference in returns?
It boils down to superior business operations, which manifests in quantifiable data that you can track and measure.
I’m talking about things like sales, operating margins, earnings, free cash flow, and so on.
You would think that performance results like Inmode’s would have made a quantitative approach incredibly popular with the investment masses. But that’s not the case.
Here’s Louis explaining:
The allure of making huge profits has drawn people to the stock market for over a century. And although many people search for stocks with 1,000%-plus potential, few find them.
The reason for this failure is simple.
Instead of using a proven, repeatable strategy for pinpointing the world’s best growth stocks, most people take the amateur’s approach. They use gut instincts and follow “hot tips” from other amateurs.
They employ different strategies randomly. They flutter from strategy to strategy like butterflies. And they end up with crudely constructed, messy portfolios.
Louis – a numbers/data junkie since his grad school days – takes a different approach.
Over his multi-decade career, Louis has noted that quantitatively-strong stocks tend to share common “fingerprints,” so to speak. Given this, he’s programmed his algorithmic-based stock selection system to seek out these fingerprints.
And this afternoon at 4 PM ET, he’s going to tell you exactly how his system works.
***You’re invited to a special, free webinar event with Louis happening today at 4 PM ET
Louis will be detailing the stock selection strategy he uses in his service, Breakthrough Stocks.
In short, it’s a codified set of numbers-based rules that identify which specific, elite small-caps to buy, when to buy them, how long to hold, and when to sell in order to lock in profits.
Engineered over four decades of investment experience, this system helps avoid the “bubble prick” losses that Zillow investors just suffered. Instead, Louis’ system identifies stocks that are climbing based on fundamental strength, like Inmode.
Back to Louis:
You’ll hear me mention “earnings” and “fundamentals” a lot, so pay close attention to these numbers—they’re the secret to our success.
My system analyses nearly 5,000 stocks every day, grades them according to the individual qualities, and combines the individual metrics to create an overall composite grade for any stock.
Here’s a brief snapshot of a few of the gains Louis has enjoyed using this system:
- A 220% gain on Bitauto Holdings
- A 208% gain on Valeant Pharmaceuticals
- A 371% gain on America Movil
- A 457% gain on Holly Corp.
- A 287% gain on XTO Energy
- And 613% gain on Santarus
Back to Louis:
Because of how I designed my stock-picking system, we did it all with less risk than an S&P 500 index fund!
If you know anything about those companies, that might surprise you because they were all small-cap stocks. Their index benchmark, the Russell 2000, is certainly known for wider swings than the S&P 500 or the Dow.
But these smaller up-and-comers are also where you can find the best growth prospects. And when you’ve got a small cap with great momentum on Wall Street – plus strong fundamentals – then that’s a recipe for superior gains like the ones I just mentioned.
I don’t mean to brag, but I’m just trying to underscore how much better your performance can be with a stock-picking system like mine.
It’s a crucial concept for investors right now, especially with investors growing more fundamentally focused now that the third-quarter earnings season is coming to a close.
Today’s event is totally free. You only need to register, which you can do by clicking here.
I’ll give Louis the final word:
My system separates the wheat from the chaff, and earnings, in particular, are the bedrock statistic for this system.
I will be putting everything together, so you can see exactly how my system works – and how I can make it work for you, today at 4 p.m. ET.
Have a good evening,
Jeff Remsburg
