AFTER their worst week in several years, high-flying stocks that defied gravity throughout 2013 look like they’re in for more punishment. The reason: Despite the plunge, they still look overvalued.
Familiar names such as Netflix, Facebook and Tesla Motors, along with a number of biotechnology and cloud-computing stocks, have been hit in the last month. Some stocks are down more than 20 per cent over that period and yet their valuations still far exceed those of the broader US stock indexes.
The declines have come at a time when investors overall are seeing a general improvement in economic figures, including Friday’s nonfarm payrolls data, which showed strong job gains in March and more people
Expectations for earnings have come down for the first quarter, but investors are hoping for an improved outlook for most of the S&P 500. That may cause the rotation away from hyper-growth to steady growth to continue.
Earnings season begins this week with reports from Bed Bath & Beyond, Wells Fargo and JPMorgan Chase & Co.
First-quarter S&P 500 companies’ earnings are projected to have increased just 1.2 per cent from a year ago, Thomson Reuters data showed. The forecast is down from the start of the year, when growth was estimated at 6.5 per cent.
The interest in speculative plays hasn’t entirely eroded. Four different companies made their debuts on US exchanges on Friday, and all four ended their first day higher, with online food delivery service GrubHub up 31 per cent.