Momentum stocks tend to be securities that are rising quickly and have a track record of consistent gains. These also tend to be stocks of well-known companies that have brand recognition and get a lot of media attention. While momentum stocks often provide big gains to investors they can also lose steam, and very quickly. This has led to the emergence of momentum stocks to sell.
A change of strategy, shift in circumstance, or loss of confidence in the stock can send the share price trending lower. As such, it is important for investors to stay on top of news related to any momentum stocks they own and make adjustments quickly if the narrative suddenly changes.
Just as fast as momentum stocks rise, they can quickly fall. Being able to see when the momentum is starting to slow is therefore important. Here are three momentum stocks to dump before the damage is done.
Netflix (NFLX)
Reports have surfaced that Netflix (NASDAQ:NFLX) is planning to raise the price of its ad-free streaming tier once the strike by Hollywood actors ends. Netflix is preparing to hike prices in the U.S. and Canada immediately after the strike ends, and also plans to increase the fees it charges consumers in foreign markets during 2024. The price increases come as Netflix also cracks down on password sharing by subscribers and has introduced paid advertisements to its streaming platform for the first time.
While raising prices will bring in more revenue for Netflix, it could also lead to a loss of subscribers worldwide. This would be very damaging for Netflix coming during a period of rising competition and price wars among streaming companies.
Additionally, with production in Hollywood now shutdown for six months, there is a dearth of new content on Netflix, a situation that could lead subscribers to wonder what they are paying higher prices for? The move is unlikely to help NFLX stock, which has fallen 16% in the past month. This makes it one of those momentum stocks to sell.
General Motors (GM)
Speaking of strikes, the job action by the United Auto Workers (UAW) union is entering its third week with no end in sight. This is very bad for all the automakers involved, particularly General Motors (NYSE:GM), whose electric vehicle strategy was behind schedule before the strike occurred and is now likely to be thrown into reverse. The full impact of the strike won’t be known for months. However, GM has already said that the targeted strike by the UAW cost it $200 million during this year’s third quarter.
In response to the UAW strike, GM has resorted to laying off employees, most recently cutting 120 positions in Parma, Ohio, and Marion, Indiana. The company has also secured itself a $6 billion line of credit in anticipation of a protracted work stoppage and in the event of a full-blown walkout by the union.
A negotiated settlement doesn’t appear likely anytime soon with the UAW demanding across the board pay raises of 40% and a return to traditional pension plans. GM stock has declined 8% this year, making it a momentum stock to dump.
GameStop (GME)
Is Ryan Cohen really the person to save video game retailer GameStop (NYSE:GME)? Not judging by the market’s reaction to news that Cohen has been named the company’s new CEO effective immediately. After initially jumping 10% higher, GME stock has subsequently plunged 17% since Cohen was named to the top job at GameStop. The company’s share price has now declined 23% over the last month. Clearly investors don’t see Cohen as a white knight coming to the rescue of GameStop.
The negative reaction is a bit surprising considering that Cohen already serves on GameStop’s board of directors, is one of the company’s largest shareholders, and has refused to take any financial compensation for his expanded role as CEO. Cohen, who made billions from founding online pet retailer Chewy (NYSE:CHWY), first took a position in GME stock in 2020 and joined the board in 2021. His focus as CEO will be revive the retailer’s turn around strategy that is aimed at making GameStop an e-commerce company. Investors seem skeptical. All in all, it’s definitely one of those momentum stocks to sell.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
