Apple, Netflix Sharing the Seesaw of Greed and Fear
The sometimes incredible gyrations in stock prices are the result of what market efficiency theories can't adequately measure; human beings, with all of our biases, fears, and assumptions making decisions on what to buy and what to sell. We react to new "information" quickly; we tend to follow the herd. It's the " oscillation between greed and fear " as applied to individual stocks.
Thursday, we saw Apple (AAPL) fall more than 12%, primarily due to slightly diminished expectations. The company went from the darling of Wall Street to a pariah nearly overnight. This is not a high-flying tech-bubble-era name, with little revenue and no earnings, this company trades for less than 9 times trailing 2014 consensus estimates, and has net margins in the mid-20% range.
It's also "followed" by more than 40 analysts, so there should not be that many surprises in terms of new information. In September, shares breached the $700 mark, and this was a "must-own." Four months and a 35% drop later, and some believe that the company's best days are behind it.
Now Apple is a "mistake" made by investors, because they picked up some shares for $650 in November that are currently worth $450. Apple shares now trade at nearly the same level as one year ago; what happened in between was a circus of greed and fear. Was Apple really worth $700 just four months ago? Is it worth $450 now?
Netflix (NFLX) , on the other hand, has gone from rock star to pariah back to rock star. Shares jumped 42% Thursday alone, and are up more than 170% since October. The company was expected to report a loss for its latest quarter, but instead reported a modest profit, revenue slightly ahead of the consensus, and now, prospects are bright.
All of a sudden, Netflix is back in with Wall Street, which rewarded the company by nearly doubling its market cap in one day. It was not all that long ago that some high-profile players were shorting this name; its best days were "clearly" behind it. Now, it's a "must-own" name. Overnight.
The truth, for both of these companies may be somewhere in the middle. I don't own either, and am not writing this column to tout or pan them, but rather to make a point. Small investors need to be careful of the information that they act on, and especially in taking a very short-term focus.