It's Valentine's Day, but you've probably had enough of Cupid by now. Love is great and all, but sometimes you just need a box of matches more than a matchmaker. Not every stock that sweeps you off your feet will be a winner, and I have three investments that I think will be heartbreakers.
Himax Technologies (HIMX +11.41%), Tesla (TSLA 2.15%), and Virgin Galactic (SPCE +24.80%) are three stocks that are flying high this year, but susceptible to selling off in the near future. Let's go over why these three market darlings may ultimately break your heart.
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Himax Technologies
Among the more unlikely stocks hitting new 52-week highs on Thursday is Himax Technologies, a designer of display drivers and other semiconductor products. The stock has nearly doubled this year, up 83% in 2020 after announcing better-than-expected preliminary financial results last month. The stock is making hearts go aflutter this week by actually posting those fourth-quarter results and issuing encouraging guidance.
Revenue for the fourth quarter clocked in at $174.9 million, declining 8% from a year earlier. A small gain in its small and medium display drivers segment was more than offset by a 22% plunge in large display drivers. Its non-display business also staged a year-over-year retreat. The excitement here is that business is actually growing sequentially, a big deal for a cyclical business like the semiconductor industry.
Guidance for the current quarter is even better. It sees an 8% to 18% year-over-year increase in the first quarter. It has historically posted a sequential top-line decline in the first quarter, but it's eyeing a 1% to 10% advance this time around during the seasonally sluggish period. The headwinds that it was warning about a few months ago are now tailwinds, with Himax eyeing positive momentum across its smartphone, tablet, and automotive display lines.
This all sounds like good news, but Himax has a habit of disappointing investors. The stock has only moved higher in one of the past six years. The only year in that time that it did move higher -- nearly doubling in 2017 the way it is right now -- it would go on to fall precipitously in each of the two following years.
Tesla
This will probably be the most controversial of the three names on my heartbreaker list, but it's hard to justify the electric-car maker's stock more than tripling over the past six months. Revenue rose 2% in its latest quarter, and while it did see a 23% increase in the number of cars it delivered during the period it was basically consumers shifting to the cheaper Model 3 at the expense of the older and pricier S and X models.
The bullish narrative here is that Tesla should be valued more as a tech stock than a conventional automaker. Well, on that front, we're seeing ASPs (average selling prices) move lower given the product mix shift for a business that is low margin by tech standards.
I'm not bearish on Tesla. Analysts see revenue more than tripling within the next three years and I don't disagree with that. Wall Street pros see profits exploding skyward at this point, and I'm applauding. However, Tesla stock is a volatile beast. The effervescent bullishness for a company behind big-ticket products in an economy that can't be buoyant forever is a problem. Even bulls wouldn't be surprised if Tesla stock closes out the year below Thursday's $804 close. The median analyst price target is $506. The company is a long-term winner, but the same can't be said about the near-term prospects for the stock with its $153 billion enterprise value.
Virgin Galactic
All three of these stocks are taking off this year, but Virgin Galactic is the only one that has more than doubled in 2020. Space tourism for the masses, for now, is just a billionaire's dream. True to its Virgin moniker, this is Sir Richard Branson's dream for space travel. He competes against other moneyed market icons Jeff Bezos (Blue Origin) and Tesla's Elon Musk (SpaceX).
These are three pretty smart billionaires piloting these three pet projects, and since Virgin Galactic is the one venture that is now publicly traded, it's easy to see why space buffs with stars in their eyes are flocking to the stock. Branson hopes to start taking folks willing to shell out $250,000 on their first trip to the edge of space as soon as later this year.
Virgin Galactic dreams of a future of Earth-orbiting hotels, science labs, and transcontinental service, but folks are paying up just for the experience of going up to the edge of space -- joining the 50-mile high club to be technically considered an astronaut -- in a reusable vehicle. Hundreds of wealthy consumers have already booked with Virgin Galactic, but we're still decades, if not longer, away where this becomes anything other than a novelty. As the lone public play with a thin float, this is going to have more ups and downs than Avenue 5. Space travel is a gamble at this point, and it's why Virgin Galactic is a risky wager after soaring 105% so far this young year. Investing in IPOs can be risky, but this particular newbie is out of this world in more ways than one.
