A rough October for some of the Nasdaq index's biggest names may have created an opportunity for investors. The four stocks covered here had more than $30 billion in combined market cap losses last month. If you've wanted to buy these hot stocks for a bargain, this might be your chance.
Be careful, though -- don't ignore the warning signs that the market is broadcasting. Just because a stock gets cheaper doesn't necessarily mean that it's bound to turn back around to growth.
MELI Total Return Level data by YCharts
1. Novavax
Novavax's (NVAX 3.99%) stock price dropped 28.2% in October as investors soured even further about the company's inability to capitalize on its coronavirus vaccine due to manufacturing issues. Novavax developed a vaccine that achieved favorable results in a phase 3 clinical trial in January, but it hasn't managed to sell any units in the United States after failing to secure U.S. Food and Drug Administration (FDA) clearance. Competitors in the U.S. market have already received full FDA clearance, so it's unlikely that it will ever be a major factor in one of the world's largest markets.
Certainly, there was a lot of wasted potential here. Struggles with raw material sourcing cost Novavax billions in revenue. However, there are signs that it has turned a corner -- Novavax recently completed regulatory filings in the U.K. and Australia. This follows news earlier this year that the European Commission would be purchasing 200 million vaccine doses from Novavax. The bulk of financial opportunity in the United States might have already passed, but an enormous number of people around the world are still waiting to be vaccinated.
Image source: Getty Images.
Analysts are forecasting earnings per share (EPS) of at least $12.50 for Novavax next year. The resulting 15.6 forward price-to-earnings (PE) ratio seems like a slam-dunk valuation in today's market, but there's still a lot of uncertainty in the medium term. Even if it smashes next year's earnings estimate and drives share prices higher, cash flows could dry up quickly afterward. Novavax is a big question mark for long-term investors.
2. MercadoLibre
MercadoLibre (MELI 0.28%) share prices declined 11.8%, even though it didn't publish any sort of bad news. MercadoLibre is an e-commerce powerhouse. It is the largest online retailer in Latin America, and it also has an e-commerce platform that supports digital stores for other retailers. MercadoLibre has also moved into the fintech fray by rolling out banking and payment services.
In its most recent quarter, MercadoLibre doubled revenue while increasing its number of active users by nearly 50% to 76 million. Its operational results are certainly impressive, and its outlook is just as strong. So why did MercadoLibre stock take a beating in October? It seems like this is simply a case of investors responding to aggressive valuations during times of uncertainty.
Retail stocks are reporting mixed results in third-quarter earnings season, with supply chain issues leading to higher expenses. Amazon was among the prominent names that raised concerns about near-term interruptions. MercadoLibre stock has a price-to-sales ratio above 14. That's normal for growth stocks that are prioritizing rapid growth over earnings, but any speed bump can send share prices tumbling.
If you already loved MercadoLibre's long-term prospects, it just got a lot cheaper without the fundamental story changing. Don't be shocked if there's more volatility in the near term.
3. Robinhood Markets
Robinhood Markets (HOOD 1.71%) is a fintech unicorn that's encountered its fair share of controversy over the past year. The equities-trading platform rose to prominence as a no-fee online brokerage that quickly accumulated more than 20 million users. Robinhood enabled anyone to become a stock or crypto investor, regardless of their income or wealth level. However, concerns have been raised that the company was executing trades and sharing data in ways that were unfair to users.
The stock price dropped nearly 17% in October due to a discouraging earnings report. Revenue grew 35% year over year, marking a slowdown from prior periods. Even more troublesome, the number of active users shrank more than 10% from the previous quarter. Those numbers aren't good enough for growth investors who bid the stock high enough that the price-to-sales ratio topped 17.
Robinhood has been an innovative fintech force, but it might struggle to maintain the growth rates necessary to justify its valuation. It operates in a highly competitive environment, it betrayed the confidence of many users over the past year, and it is losing some of the momentum previously provided by meme stocks and crypto trading. Approach this one carefully.
4. Moderna
Moderna (MRNA 1.66%) has been one of the hottest healthcare stocks after it developed a COVID-19 vaccine and won several large supply contracts. However, the stock price slid 10.3% due to a combination of increased competition, safety concerns, and aggressive valuation. It actually dropped around 20% within the month before reversing some of those losses. Investor sentiment improved after an FDA expert committee recommended the use of booster vaccines.
Moderna shares have returned more than 2,000% since the beginning of 2020, driving valuations so high that it's hard to sustain those gains. Just like Novavax, Moderna is likely to enjoy a year or two of excellent results, but there's major uncertainty after that. The 10% price adjustment did little to take downside risk off the table.
