It’s been feast or famine for most investors throughout 2021. While stock indexes are up overall on the year, there has been heavy rotation in and out of various stocks and sectors. This has made it difficult for investors to achieve consistent gains during this volatile trading period. Once-hot stocks have cooled since Covid-19 restrictions eased and consumer habits have shifted.
Some high-flying stocks have been pulled down to earth by high inflation, global supply constraints, geopolitical events and new strains of the coronavirus. These factors have rattled markets and sent analysts into fits. It all adds up to a challenging environment, one that continues to be fueled by uncertainty and speculation.
Things may stabilize next year. But as we wait for the calendar to turn to 2022, let’s take a look at four once-hot stocks that have fallen the furthest in 2021:
Once-Hot Stocks: Walt Disney (DIS)
Disney is normally a reliable bet. Between March 2020 and March 2021, the House of Mouse’s share price rose more than 120% to an all-time high of $203.02. As recently as September of this year, analysts had a median price target on DIS stock of $210 per share.
The gains and optimistic outlook were being fueled by the success of the Disney Plus streaming service. It launched only a few months before the Covid-19 pandemic arrived and managed to add more than 100 million monthly subscribers in its first 16 months as many viewers sheltered at home.
However, that optimism evaporated when Disney reported in its most recent quarter that its streaming platform’s subscriber growth is slowing.
At about $150 per share, DIS stock is approximately 25% below its all-time high reached in March of this year. On Dec. 1, Disney’s stock was down 30% from its all-time high at $142.15 per share. The median price target on the stock has now been lowered to $200.
While the downturn has been swift and steep, there are some on Wall Street who feel the recent selloff has been overdone. Analysts who remain bullish on Disney say sellers neglected the fact that Disney’s theme parks, cruise lines and theatrically-released movies each made strong comebacks over the summer. These segments look primed to grow more heading into this year’s final quarter as Covid-19 restrictions continued to be eased.
Changes are underway at online payments giant Square. The biggest change is that the company is officially switching its name to “Block” on Dec. 10. According to the company, the name change to “Block” partially reflects its increasing focus on cryptocurrencies that run on underlying blockchain technology.
That adherence to cryptocurrencies is being driven by company founder and CEO Jack Dorsey. It’s also one of the main reasons SQ stock is currently about 35% below its 52-week high. Square is down nearly 15% year-to-date (YTD) at its current price around $190 per share.
It’s been a big drop for SQ stock, which rose 659% between a March 2020 trough of $38.09 to a February 2021 peak of $289.23. The pullback has been caused by three main issues.
The first was a general downturn in financial technology (fintech) stocks. Second, SQ stock was impacted by concerns that online payments would slow as businesses reopened and people would buy fewer items online. Finally, Square’s increasing exposure to volatile cryptocurrencies contributed to its falling share price, as many business and investing leaders continue to dismiss the asset class.
At last count, Square owned 8,027 physical Bitcoin (CCC:BTC-USD) valued at about $408 million. Dorsey continues to espouse the future potential of Bitcoin and other digital tokens, but investors seem to need more convincing.
Once-Hot Stocks: Zillow (ZG)
It was only about a year ago when investors thought online real estate marketplace Zillow was going to change the world. Or, at least change the home buying and selling experience.
Zillow was a stay-at-home stock favorite and its share price rose an astounding 800% between its March 2020 low and February 2021 high. But after summiting at $212.40, ZG stock has crashed hard, falling 70% from its all-time high to now trade around $63 per share.
It’s been a brutal decline for a stock that was a Wall Street darling a little more than six months ago. What changed? Softening financial results and the company’s decision to exit its iBuying business known as “Zillow Offers” turned the tide for the company’s shares.
Zillow’s iBuying business enabled homeowners to sell their home without a broker or real estate agent, saving them money on expensive commissions. While ultimately unprofitable, it turns out it was one of the company’s most popular features. Without it, analysts and investors aren’t sure how Zillow will recover.
While the company plots its next move, it has announced it will buy back $750 million of its own stock. The share buyback announcement was enough to stop the erosion of ZG stock. However, long-term, Zillow will need a more substantial plan to grow its online real estate marketplace and get its share price back to lofty heights.
Shareholders of Chinese e-commerce giant Alibaba have ridden the escalator all the way down to the basement this year. The poster child for the Chinese government’s crackdown on technology companies, Alibaba has accumulated a record $2.8 billion in antitrust fines.
With each hit, BABA stock has sunk lower. Even reports that other Chinese companies are being hurt by the government have dropped its price. For example, recent news that ride-hailing company Didi Global (NYSE:DIDI) is delisting from the New York Stock Exchange was enough to send Alibaba’s share price down nearly 10% in a single day.
All told, BABA stock is down 45% this year. And, at just about $125 per share currently, the stock is 55% off its 52-week high of $274.29 reached this past February. The downturn came after the share price ran up as much as 71% between March 2020 and October 2020.
Despite the sharp decline, many U.S. analysts and investors continue to believe in Alibaba. It remains one of China’s biggest technology companies, with interests ranging from online shopping and digital payments to cloud computing and artificial intelligence.
Many people on Wall Street see a buying opportunity in Alibaba stock now that it has become grossly undervalued. But until the Chinese government eases up on its private-sector crackdown, Alibaba remains a risky investment.
On the date of publication, Joel Baglole held long positions in DIS, SQ, ZG and BABA stocks. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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.