Dodging Bullets: As Key as Picking Winners

Traders get excited when their stocks make big gains. In the end, though, avoiding potholes and fatal errors can be just as valuable as selecting winners. Chasing hot momentum names can be very seductive. Nothing gets your heart pumping like a stock that surges. Unfortunately, those type of shares often crash and burn later as their true values were often totally disconnected to their market prices. Wall Street is littered with stocks that show that pattern. Under Armour Under Armour was a true market darling in 2015 after running from $1.50 to almost $53. At 100 times that year's earnings per share UAA was doomed even if results had continued to be good. Instead, that proved to be the top of their earnings cycle. Over the next couple of years shareholders experienced the pain of a 78% plunge. GoPro GoPro was the toast of the town in 2014, after its $24 IPO. The shares opened higher and didn't top out until $98.50. Once again, buyers at over 100x earnings got destroyed. When the chart below was generated GPRO was down about 95% from that old high. Ouch. Fitbit Fitbit popped quickly from a $20 IPO price to almost $52. The fact that FIT was trading for just 48.5x earning s didn't stop it from sinking a sickening 91% by this year's low. El Pollo Loco and Shake Shack It's not just gadget companies that can slam momentum traders. El Pollo Loco and Shake Shack sucked lots of traders into their stocks when they surged following their IPOs. They dropped around 77% and 69%, respectively from their peaks before stabilizing a year or two after carving out their tops. Potbelly Sandwich shop operator Potbelly showed a similar pattern to LOCO and SHAK. It quickly more than doubled from its IPO price before selling off by more than 70%. 3 More Too Hot to Touch Here are three stocks that are still too hot to touch. If you own them, seriously consider locking it gains before they become the next casualties of war. As of April 30, 2018, Ollie's Bargain Outlets fetched over $62 per share. Traders were ponying up almost 63x this year's estimate. Even good news over the next couple of years might see OLLI significantly lower than its current quote. Any disappointment could torpedo the shares. Cheap gym memberships without body shaming has been a winning strategy for Planet Fitness so far. The company's fast growth and positive chart pattern has the stock too pumped up to offer any value. As with Ollie's even good news might not be adequate to ensure positive share price action. I could see PLNT down 10% to 15% over the next 24-months if all goes well. If they miss expectations look out below. The third stock I chose to highlight was Match Group , the operator of the popular online dating sites shown below. These are great, growing businesses but MTCH appears incredibly expensive, even compared with its own relatively short trading history. Facebook's FB May 1, 2018, surprise announcement that they will be starting up an internal dating app seriously dented the stock, whose valuation left no room for error. IAC/InterActive , Match's former parent company took a major header on that news as well. Profitable investing is hard work. Don't make it tougher on yourself by owning overpriced, high-risk shares that can sink your portfolio. When your future welfare is at stake it makes sense to stick with predictable, solid values that can ensure a good life and a secure retirement.

Dodging Bullets: As Key as Picking Winners

Six formerly hot stocks that crashed and burned -- and three still too hot to touch.

Columnist Conversation

This Weekend on Real Money

Wednesday Morning Fibocall for 1/13/2021

Tuesday Morning Fibocall for 1/12/2021

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.