Why Netflix, Facebook, and American International Group, Inc. Are Today's 3 Worst Stocks

Momentum stocks take a dive and financials take a bath as well in the stock market today.

May 6, 2014 at 7:57PM

All 10 sectors of the stock market lost ground on Tuesday, but high-growth stocks, financials, and tech companies really bore the brunt of the pain. That was bad news for shares of Netflix (NASDAQ:NFLX), Facebook (NASDAQ:FB), and American International Group (NYSE:AIG), each of which ended near the bottom of the S&P 500 Index (SNPINDEX:^GSPC). The S&P itself fell 16 points, or 0.9%, to end at 1,867.

The wacky thing about stocks is that their performance can fluctuate drastically from the real company behind the shares. This is doubly true when examining daily stock market swings, and I think Netflix's 5.3% stumble today is a good example. Netflix's valuation on Wall Street currently flirts with the $20 billion mark, and after Tuesday's 5% plunge, the company is worth about $1 billion less today than it was yesterday. That's absurd, especially when you consider that the only thing going against Netflix today was its classification as a momentum stock; in other words, Netflix (the business) is doing just peachy. It even struck a deal with Suddenlink, a cable company with 1.2 million customers, for its service to be available on Suddenlink's cable boxes. They say if you live long enough, you see everything. 

Meanwhile, Facebook shares, which have only been "living" on Wall Street for less than two years, dropped 4.4% today. Let me fill you in on a secret that Wall Street apparently hasn't learned during its short, dysfunctional relationship with Facebook stock. Facebook isn't Twitter! While it's a plain fact of life that the two companies are separate entities with different futures, business models, and (gasp!) even differing names, what's bad for one must be bad for the other -- or so goes the Wall Street rationale.

Twitter shares cratered, losing nearly 18% on Tuesday, as the "lockup" period ended, allowing pre-IPO insiders to cash out. Facebook? Well, it happened to be a social media stock, which Wall Street found reprehensible on Tuesday. While the reasoning behind today's sell-off is downright idiotic, at the same time I think Facebook shares are indeed a bit pricey, especially considering recent acquisitions like the messaging application WhatsApp, which Facebook snatched up for a cool $19 billion. I sincerely hope it can one day break even on the deal.


Source: AIG.

Lastly, shares of American International Group, or AIG, shed 4.1% today, in the lone instance -- on today's list -- of a stock reacting to unfavorable news about the state of the underlying business. The most legendary stock market investors tend to hold similar philosophies when it comes to choosing winners: think of a stock as a piece of a business instead of a nebulous get-rich-quick tool. As for AIG's business, its property and casualty insurance segment dragged shares down, suffering through a weak first quarter as payouts jumped on larger disaster claims. That said, its life insurance division is chugging along nicely, logging a 28% jump in premiums, and the insurer is entering the dawn of the post-government era, an era that saw AIG bailed out as it saw staggering losses during the financial crisis.

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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 AIG, Facebook, Netflix, and Twitter; owns shares of AIG, Facebook, and Netflix; and has options on AIG. 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.

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