Wall Street goes through cycles just the way many other things do in life, the difference is, at the top and bottom of their cycles stocks generally get way overdone. Today I wanted to take a look at five different stocks that have been darlings of the street at some point in the last two or three years, only to fall severely out of favor.
- Crocs Inc. (Nasdaq:CROX) For a while this company was as hot as any company on the street. The growth rate was outrageous and the
stock would go up seemingly every day. The unique type of shoes was the talk of the town and more and more people were finding them to be very comfortable footwear. What happened here? The growth rates have fallen and wall street has come to grips with the fact that the valuation of this stock got way ahead of itself. The company must branch out into other products and quickly, before it is a lost cause. - Garmin Limited (Nasdaq:GRMN) This GPS giant was loved on wall street for many quarters because of its consistent high growth rate and impressive balance sheet. Customers were coming in droves to buy the latest GPS device for their car, and Garmin ads were all over the television. What has changed? The competition getting tougher is Garmin's single biggest issue. Also, Garmin now has an inventory problem as demand has weakened due to slumping economy.
- Las Vegas Sands Corporation (NYSE:LVS) I picked LVS for this series, but you really could have picked several other casino stocks as well. The casino group was hotter than hot through all of 2006 and most of 2007 as investors bid up the stocks based on Macau growth prospects. Since that time all of these stocks have hit the skids as the Macau growth targets seem unattainable and the group continues to disappoint with its earnings results.
- Nutrisystem (Nasdaq:NTRI) Everyone has seen this companies ads all over the television. This weight loss company was revolutionary in its business model, and it won over consumers and investors alike with great ease. The stock went from $3 in early 2005 to $74 last July, but has since taken a great tumble. The long-term sustainability of both the diet plan and the company itself have come under a lot of scrutiny in the last few months. Nutrisystem has had to slice estimates in a huge way in the last couple of quarters, so now the company has a lot to prove to the investment community.
- KB Home (NYSE:KBH) It seems so long ago now, but it was just two and a half years ago that this stock, and all the other housing stocks were flying high. The housing market was booming and all these companies had to do was build the homes, there was no need to worry about marketing them for a sale because there was a waiting list to buy them. Wow how the times have changed. Now this is the most hated group on the street, and for good reason. Can this housing market ever turn it around?
What should you make of stocks like these? Many will look at how much they have fallen and say they are a great value, but this is often not the case. Just because a stock was once expensive and is now cheap doesn't mean it can't get a lot cheaper. When you evaluate these kind of stocks you should also try to decide what these companies have done to fall out of favor and if they can regain the trust of the street.
In the case of these five stocks, I would be careful buying any of them right now, but I believe NTRI may have the best chance of bouncing back of them all. Why is that? NTRI does have a very unique business model that appeals to many customers. CROX worries me the most of these stocks because it simply cannot come out with any new products that catch people's attention.
It's interesting looking for values in companies that were once darlings of the street, but be careful you don't bite off more than you can chew.
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