• What’s The Difference Between Facebook (FB) And Netflix (NFLX)?

    by  • April 25, 2013 9:57 am • Broad Market Analysis, Quick Hits • 0 Comments

    Back in late December, I noted why getting kicked out of the Nasdaq 100 was actually bullish.

    Here was the rational for being bullish on these names.

    So the obvious question is what does this mean?  Assuming the company wasn’t bought out (which is rare given these are normally large companies), the shares are removed because of performance or their market cap is too small.  In other words, sentiment is probably incredibly low.  You don’t get kicked out for having good performance.  One of my favorite sayings is ‘You buy low expectations, not low price.’  I’m guessing getting kicked out of the QQQ probably is a sign things can’t get much worse.  

    Well, this has played out perfectly.  Out of the names that were kicked out, the average return is a very impressive 26.9%.  The huge winner of course is Netflix (NFLX) and it’s 137% jump.  Not bad for a bunch of stocks no one wanted to own at the end of 12.

    Interestingly, if you look at the names that were added to the Nasdaq 100 – they aren’t doing as well.  Yes, nine of the 10 are higher since being added, yet the average return is just 13.3%.  So about half the return of those that were added.  In other words, those that were loved and added haven’t done as well.

    What really stands out in the two lists is NFLX and Facebook (FB).  FB quickly became a popular stock and there was a good deal of hoopla when they were added to the Nasdaq 100.  Well, FB is the only stock that is negative since being added, down 7%.  Of course, compare this to a name like NFLX.  NFLX was so widely hated five months ago.  The general consensus was the company was overvalued and had no true business model.  In other words, expectations were pricing the worst.  Well, after two very strong earnings reports it is the top performing stock in the S&P 500 in ’13.

    As long time readers know, our whole methodology here at Schaeffer’s is all about buying low expectations, not low prices.  This study and actual results is a great example of how this can work.

    Lastly, take a closer look at the two lists above.  There could be a name on the ‘kicked out list’ that hasn’t moved yet, that could be waiting to explode higher.  Or one on the ‘added list’ that has held up well, but could be due to underperform soon enough.  These are two nice lists to form a watch list from.


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