Thunder From Under
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If you like cheap stocks, there is certainly no shortage of them right now. Even some of the most notable Nasdaq– pillars listed as Metaplatforms (NASDAQ:FB) – you know it better as Facebook – and newcomers as Affirm Assets (NASDAQ: AFRM) are on sale with a significant discount.
Before you go on a beat-stock buying spree, however, take a deep breath and think about it. While no stock worth holding will remain undervalued forever, the excitement of being able to dive into some of these well-known tech names can mask far greater risks. Let’s take a closer look at four of February’s worst performers Nasdaq Compound actions
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4 actions end up paying the piper
If you are wondering, PayPal Credits (NASDAQ: PYPL) is one of the biggest laggards listed on the Nasdaq in February, losing 35% of its value last month. This is related to the 35% loss recorded by the aforementioned Affirm. However, long-lived PayPal is now down 65% from July’s all-time high, making it the more notable loser of the two. confluent (NASDAQ: CFLT) is not far behind, dropping 34% last month, while shares of Facebook’s parent meta-platforms fell just over 32% in February. Like PayPal, Meta extended (and accelerated) a sale that has been ongoing since September.
With or without a military conflict in Ukraine, these are not the kinds of performances one would expect to see from this kind of action by these kind of companies. It looks like a buying opportunity and that’s understandable if you’re licking your proverbial chops.
Before you get into any of them, however, take a step back and look at the bigger picture.
Yes, they look like bargains here. It’s rare to see a stock drop more than 30% in a month and stay at that newly lowered price. It would also be wrong to dismiss the reality that factors such as the spread of COVID-19, runaway inflation, the rise of cryptocurrencies, political theater and even the Russian military invasion of Ukraine – while captivating headlines – tend not to hold the market and its key stocks down for very long.
There’s something big going on here, though, it’s a bit hard to put your finger on it. From a philosophical point of view, months turned into years of excess and blind speculation are finally coming back to haunt the stock market. Last month’s Nasdaq Biggest Losers serve as the proverbial posters for this idea.
Take Affirm as an example. Although it looks like a conventional lender at first glance, it actually targets a part of the loan market where consumers can get into debt quickly. A study by Credit Karma suggests that the average loan size in the relatively new credit market to buy now and pay later is between $50 and $1,000, and is most often used to purchase household items, furniture, electronics and clothing.
The option of funding relatively small amounts blurs the lines between needs and wants. To that end, about a third of these buy-now-pay-later borrowers have fallen behind on what were supposed to be manageable short-term loan repayments.
Meta Platform’s Facebook is another example of how too much of a good thing can still be too much.
While the social networks The website was a much-needed way to connect with the rest of the world amid the pandemic, in many ways this flood of web traffic has exacerbated the platform’s already existing problems. Chief among these issues is the fact that the bigger Facebook got in terms of user numbers, the more unwieldy (and even toxic) it became.
For the first time ever, the social media site’s average daily user count contracted in the quarter ending December. It was a small decline to be sure (only around 1 million people). But all big trends start small, and its user growth has been slowing for a few quarters now. Continued user rejections are a legitimate concern.
As for PayPal, while still the leader in the digital payment space, serious competition is now setting in. This too was inevitable.
Not like past withdrawals
None of this means that Meta, Affirm, Confluent and PayPal are doomed. Facebook and PayPal are sure to survive, and young Confluent’s recent plunge seems temporary in nature, tied to last quarter’s results and the new stock still finding its bearings. We can expect volatility. The only dubious name in the bunch is Affirm, which is one of several buy now, pay later outfits reviewed by the Consumer Financial Protection Bureau. A remodeling of what the company is and how it is licensed to do business may be in the cards.
However, the sheer magnitude of these recent sales quietly signals that the market is rethinking just how sustainable the world’s biggest consumer-facing tech companies actually are. This is a relatively new concern, and it’s not the kind of worry that market participants will be quick to ignore.
In other words, no, the sell-off isn’t reason enough to start reclaiming what was once one of the hottest stocks on the Nasdaq. There’s more at play here than the usual (and short-lived) downside volatility we’ve typically seen over the past two years. This could take a while to settle, which would delay these names as the process unfolds.
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Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a board member of The Motley Fool. James Brumley has no position in the stocks mentioned. The Motley Fool owns and endorses Affirm Holdings, Inc., Confluent, Inc., Meta Platforms, Inc., and PayPal Holdings. The Motley Fool recommends the Nasdaq. The Motley Fool has a disclosure policy.
