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These Nasdaq High-Flyers Are Getting Exactly What They Need Today

By Dan Caplinger - Dec 9, 2020 at 12:59PM

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The Nasdaq gave up some ground Wednesday, but it could be a pause that refreshes.

Stocks have been making record runs lately, but at least on Wednesday morning, the Nasdaq Composite ( ^IXIC -1.92% ) decided to take a little break from its bull market. The Nasdaq gave up about 0.25% as of 11:30 a.m. EST, falling back from its record close on Tuesday.

The top stocks in the Nasdaq this year have done far better than the overall index, but some of them are giving up more ground today. Yet as difficult as it is to see a favorite stock drop, sometimes a pause is exactly what investors need in order to see further long-term moves higher in share prices. Moreover, short-term declines give interested shareholders a chance to add to their positions.

Person wearing running gear bent over stopped on a road.

Image source: Getty Images.

How 2020's big winners in the Nasdaq are doing

It's notable that when you look at many of the strongest performers in the Nasdaq lately, they're largely losing ground today. Tesla ( TSLA -6.42% ), for instance, is down almost 2% Wednesday morning, giving back a tiny bit of its 677% year-to-date gain. Tesla indicated on Tuesday that it would look to sell shares to raise capital, but there was nothing new about the company that seemed to justify the pullback.

Latin American e-commerce marketplace leader MercadoLibre ( MELI -6.75% ) saw larger declines, falling nearly 4%. The company was up more than 180% year to date before this morning's fall, with no new information supporting the drop.

Meanwhile, Zoom Video Communications ( ZM -4.08% ) gave back more of its gains. The stock had been up as much as 750% year to date back in October, but a big drop that was exacerbated by an earnings report earlier this month that failed to meet sky-high expectations slashed that gain to 500%. Zoom is down another 3% Wednesday morning, falling back below the $400 per-share mark.

Even coronavirus vaccine star Moderna ( MRNA 1.74% ) is proving susceptible to the trend. It's down almost 4% Wednesday morning, even as signs of nearly insatiable demand for its vaccine candidate lift its business prospects.

Don't give in to temptation

When stocks start to see their prices go down even when fundamental business news is good, it can make you think that you simply can't win. Many investors sell their stock when this type of disconnect occurs.

However, even the best-performing company won't see its stock price shoot straight up without any pauses. Even though long-term investors pay attention to the fundamental prospects for a company's business, short-term traders use other metrics for deciding whether to buy, sell, or hold onto shares. Often, those moves are designed exactly to prompt weak-willed investors to make the wrong decisions.

Selling a winning stock on a downward move appeals to your inner sense of preserving gains and avoiding losses. No one likes to see a big winner turn into a smaller winner.

What's easy to forget in that situation, though, is that no one likes to miss out on a big winner turning into an even bigger winner, either. Yet if you have a high-quality company, you'll find that time and time again, that's exactly what happens if you sell at the first signs of a slowdown in share-price growth.

Wait for real news

When a stock drops for a reason, then that can be a legitimate motivation to look at your position and decide whether you should still own your shares. But with nothing substantial happening to Moderna, Zoom, MercadoLibre, or Tesla today, odds are that if you own these growth stocks for the right reasons, you should keep on owning them today and for the foreseeable future.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Mercadolibre, Inc. Stock Quote
Mercadolibre, Inc.
MELI
$1,052.95 (-6.75%) $-76.27
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
^IXIC
$15,085.47 (-1.92%) $-295.85
Tesla, Inc. Stock Quote
Tesla, Inc.
TSLA
$1,014.97 (-6.42%) $-69.63
Moderna, Inc. Stock Quote
Moderna, Inc.
MRNA
$306.72 (1.74%) $5.23
Zoom Video Communications Stock Quote
Zoom Video Communications
ZM
$183.92 (-4.08%) $-7.83

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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