Three of the Biggest Momentum Stocks
Here's what's going on with the biggest momentum stocks of the past few years.
With stocks falling and fears rising of another summer swoon, it seems prudent to look at momentum stocks to see what they are indicating. Three of the biggest momentum stocks of the past few years, Priceline (PCLN), Starbucks (SBUX), and Chipotle (CMG), have fallen sharply from their respective highs. So where are these stocks going and what catalysts exist in the near future to potentially propel them back higher?
Priceline recently reported earnings that beat expectations by 8.4%. As oil prices fall, Priceline may actually benefit because ticket sales might go up as prices fall. If the volume increase can outpace the fall in prices, Priceline will definitely continue to perform. With lots of cash and little debt on the balance sheet, Priceline should continue to grow by being nimble and being able to adjust to changes in the travel industry. A real risk to Priceline is the euro, however, as their main growth segment, European bookings, is priced in euros and has to be passed through to dollars. Therefore, a weaker euro hurts the bottom line through the eroded value of these bookings. The core business may continue to perform well, but factors outside of Priceline's control may be the nail in the coffin. With Expedia (EXPE) hitting new 52-week highs today, we may be seeing a shift out of Priceline and into Expedia.
Starbucks is up over 1% today, as Bank of America Merrill Lynch upgraded the stock from hold to buy, citing that the company is well-positioned for strong earnings growth in the years ahead. With Starbucks diversifying into businesses other than just its core coffee business, it may seem attractive if earnings growth can accelerate. However, with a next twelve months P/E of 23.42x and a PEG ratio of 1.49, it is hard to see any more value here unless earnings growth picks up. Thus, the new business lines need to generate out-sized returns in order for Starbucks to churn higher. What is helping is the fall in coffee prices recently, which should at least allow Starbucks to put on new hedges for outer years where prices are expected to climb again.
Chipotle yesterday disclosed that it had been subpoenaed by the SEC in relation to an ongoing investigation into its hiring practices. The stock fell on the news and is well off of its highs from April. Similarly to Priceline and Starbucks, the stock is very rich on a valuation basis and really needs a catalyst to send it higher. With a next twelve months P/E of 35.7x and a PEG ratio of 2, the stock is in the same boat as Starbucks -- overvalued unless the growth rate accelerates. Last quarter's earnings beat by 2.7%. but with analysts becoming slightly more bearish of the stock and strong economic headwinds brewing, this may be the end of Chipotle's run. Look for more analysts to cut earnings leading up to the next earnings report in a few months as a key indicator of a top in this stock.
Editor's Note: This content was originally published on Benzinga.com by Matthew Kanterman.
Below, find some more great ETF and market content from Benzinga:
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter