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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.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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