Marlboros and Budweiser
The bears are taking a swipe at popular momentum stocks to kick off the trading week.
Several prominent market leaders staged sharp retreats during Monday’s session — most notably red-hot software stocks and other momentum plays throughout the tech sector. While the Nasdaq Composite finished the day down less than 0.25%, popular software names such as Twilio Inc. (NYSE:TWLO) and Splunk Inc. (NADSAQ: SPLK) slid lower by more than 5%.
Traders also took aim at other overbought high-flyers, shooting down cybersecurity stocks and a handful of biotech and semiconductor plays that were flying a little too close to the sun.
But it’s important to remember that one bad day for these overbought momentum names isn’t the end of the world. In fact, a little market rotation could help a few struggling stocks catch up with the momentum leaders…
As the major averages begin the week on the wrong foot, we’re starting to see some signs of life appear in the once-mighty FAANGs.
It’s no secret that the performance of the FAANGs — Facebook, Amazon, Apple, Netflix, and Google (Alphabet) — has been hit or miss this year.
You know the story by now: The FAANGs and their momentum cousins began to splinter in 2018. As we discussed late last month, breadth for this group peaked early last summer and has since failed to keep pace with the S&P 500.
But a couple of these stragglers are showing signs of life this week as the averages sink into the red.
After consolidating for the entire month of February, Apple Inc. (NASDAQ:AAPL) and Alphabet Inc. (NASDAQ:GOOGL) both pushed to new year-to-date highs on Monday. Meanwhile, Amazon.com (NASDAQ:AMZN) gained 1.5%, pushing shares back toward their January highs.
Thanks to Monday’s action, all three of these stocks are now up double-digits on the year. While these gains are nothing to scoff at, the moves don’t even come close to putting these names anywhere near tech’s top performers — such as the 34% year-to-date surge in Netflix Inc. (NASDAQ:NFLX) or the 26% gain in shares of Facebook Inc. (NASDAQ:FB).
Speaking of Facebook, the social network stock was one of yesterday’s biggest winners, gaining more than 3% to reclaim its 200-day moving average. Don’t sleep on Zuckerberg this month…
Turning back to our “sin stock” theme, let’s see how Big Tobacco is faring as old-school beer stocks look to regain their footing.
Philip Morris (NYSE:PM) slashed full-year guidance Monday after a Quebec court ruling threatens future business in Canada, Bloomberg reports.
Philip Morris was one of three major international tobacco companies ordered to pay damages in a class action suit, and Bloomberg notes the company might also have to fork over more money as Canada attempts to recoup healthcare costs for tobacco-related illnesses.
Yet shares of Philip Morris barely slipped on the news. The stock finished Monday trade down just a little more than 0.5%. It’s now up an impressive 30% year-to-date:
Maybe Philip Morris and other tobacco firms are better equipped than the experts first thought when it comes to riding out big shifts in consumer trends. In fact, a UBS analyst just upgraded PM last week. Most of the bad news is already priced into the stock, he argues via Barron’s, and the company’s e-cigarette product is set to potentially grow from $4 billion in net sales to $10.6 billion by 2021.
The onslaught of negative publicity that has crushed the tobacco industry in recent years is undeniable. And a pronounced shift toward e-cigarettes has already prompted many old-school tobacco companies to radically adjust sales strategies. Altria Group Inc. (NYSE:MO) even went as far as to take a significant minority stake in popular e-cig maker Juul Labs in late 2018.
Can big tobacco stay ahead of the curve? Will Marlboros and Budweiser stage a pop-culture comeback?
Maybe not. But as we discussed yesterday, an Anheuser-Busch InBev (NYSE:BUD) breakout could quickly turn into a powerful trade — especially since the move goes against the common wisdom of the herd.
The same goes for Philip Morris. A breakout above its October highs could ignite an extended rally.
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