Market Darlings Are Getting Slaughtered

 | Dec 14, 2011 | 12:16 PM EST  | Comments
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Stock quotes in this article:

fosl

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crm

,

isrg

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lulu

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gmcr

,

pcln

They always slaughter the darlings. Doesn't matter whether they are doing well or doing badly, faltering or pausing. They get slaughtered. It's always been the case, it will always be the case.

That means they will take out Fossil (FOSL) and shoot it. Fossil's a fossil They will annihilate Salesforce.com (CRM) even as it is still growing like a weed. You can bet that Intuitive Surgical (ISRG) will give up the ghost even as hospitals are clamoring for the Da Vinci machines. Forget about LuluLemon (LULU). Take it off your screen. Green Mountain Coffee Roasters (GMCR)? I would rather invest in a chain of hills in Vermont.

All of the "Pretty Girls", as my friend John Roque, the theorist and technician at WJB Capital, calls them, are being massacred. Even Priceline.com (PCLN), which reported a monster quarter, fantastic guide-up and is a decent bet in a recession because people will still travel but will seek discounts, can't withstand this pressure.

What's going on? This is a time of multiple compression, meaning no one wants to pay up for future earnings because the future's gone dark courtesy of Europe. I am sure every one of these stocks has its adherents, its boosters who will say, "Cramer, you don't know jack about Priceline."

Well, you know what? I do know jack about stocks, and when everyone thinks we are going into a 2008 scenario, which is what the commodities collapse is telling you, you buy an expensive stock because you know that with one slip-up the momentum money that has propelled it to a stretched valuation deserts it immediately. Momentum money likes companies with accelerating revenue growth. It likes companies that are producing fantastic numbers despite all comers.

But, in the end when things get bleaker, people see things that they don't want to see in these companies. They worry about deferred revenue with Salesforce.com. They focus on how hospitals may not have enough money to pay for Da Vinci's fabulous machines, even as they get people out of the hospital faster and allow for more surgeries and, therefore, more billings. Maybe the government won't reimburse? Maybe people will defer surgery. They won't overlook accounting issues with Green Mountain. They decided that inventory, so good when things are smoking, is so bad when things are slowing, so they bolt LuluLemon. They figure travel grinds to a halt, so they exit Priceline. They say to themselves, "Isn't Fossil just a fad, an overpriced watch retailer the way that Sunglass Hut was an overpriced sunglass store in days of yore, and they hit any bid they can find.

That causes the charts to wilt. That causes the momentum guys, who often take their cues from the charts, to say, "Holy cow, I have to get out when the getting's still good cause I have a huge gain." It causes the short sellers to surface and pound the stocks harder.

It's a race out of a very small door, culminating with momentum managers getting withdrawals forcing them to sell even more. Remember Bill Miller from Legg Mason? He was a momentum player who never recovered from the losses he experienced.

So, be careful. Momentum's no good. Don't fight the tide. Your portfolio will turn crimson. It ain't worth it.

 

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