Dow Slumps 114 on Fed Guidance, Zulily Stumbles

Even Walt Disney stock didn't have the magic touch Wednesday; Ulta Salon continued its post-earnings rally

Mar 19, 2014 at 6:23PM
Longview

Just a day after every single sector in the stock market posted gains, all 10 sectors finished in the red. Newly appointed Federal Reserve Chairwoman Janet Yellen took Wall Street by surprise Wednesday, as the central bank said interest rates may rise even if the jobless rate doesn't improve much. While the Fed is concerned that inflation could get out of hand unless rates gradually rise, neither Wall Street nor Main Street are enthralled with the idea of rising borrowing costs. The Dow Jones Industrial Average (DJINDICES:^DJI) shed 114 points, or 0.7%, to end at 16,222.

Walt Disney (NYSE:DIS) lost 1.8% Wednesday, as it continues to be one of the most volatile stocks in the blue chip index. Disney shares have caught fire in the last few years, and have rewarded investors with 42% gains in the last 12 months alone. While I myself am a staunch believer in the company's vision, execution, and unmatched portfolio of intellectual property, businesses and stocks are different beasts. The P/E of Disney's stock has steadily expanded in the past two years, from about 16.5 to about 22.5. Investors are paying 36% more for every dollar of Disney's earnings than they were a couple years ago; if that multiple starts making its way back down to earth, shareholders will feel the pain. 

Ulta Salon, Cosmetics, & Fragrance (NASDAQ:ULTA) investors can testify to this pain firsthand. Stock in the beauty retailer cratered 20% on a single, cold December day after quarterly earnings disappointed. In a matter of months, Ulta's P/E halved, going from 54 to 27, sending the stock down nearly 40% in the process. With expectations hopefully under control now, the stock trades at 32 times earnings, and is up more than 10% since reporting an impressive quarter last Friday. Shares continued their post-earnings rally, adding 2.7% Wednesday. 

Finally, shares of Zulily, Inc. (NASDAQ:ZU) didn't take well to the downturn today, shedding 4.7%. Here again we should be careful to separate the company from the stock price: the company is on an absolute tear, growing sales from $18 million in 2010 to nearly $700 million in 2013. Zulily came out of nowhere in just a few years, finding success as a niche, mom-facing flash sales e-commerce site. But this flash sales all-star could be just a flash in the pan, a risk that might not be fully factored in to the stock's valuation, with shares exchanging hands at 132 times next year's projected earnings.

The Motley Fool's 3 stocks to own forever
As every savvy investor knows, Warren Buffett didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal The Motley Fool's 3 Stocks to Own Forever. These picks are free today! Just click here now to uncover the three companies we love. 

John Divine has no position in any stocks mentioned. You can follow him on Twitter, @divinebizkid, and on Motley Fool CAPS, @TMFDivine.

The Motley Fool recommends Ulta Salon, Cosmetics, & Fragrance and Walt Disney and owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers