The stock market just shot a warning at stay-at-home stocks

Tuesday was a strong day for the stock market, and investors hoped that the near future could bring a much larger stimulus package that would help strengthen the US economy. Profits for the Dow Jones Industrial Average (DJINDICES: ^ DJI) were relatively modest, but sharper gains for the S&P 500 (SNPINDEX: ^ GSPC) and Nasdaq Compound (NASDAQINDEX: ^ IXIC) reflected the widespread boom in the market.

Data source: Yahoo! Finance.

Momentum-driven investment strategies have performed excellently over the past nine months, and companies that were able to deliver much-needed products and services to those who had to stay home due to the COVID-19 pandemic were among the top performers. However, a few prominent home growth stocks were lower on Tuesday, missing the rally and raising the question of whether a broader market rotation would be imminent.

Fair warning

The warning shot comes from analysts at UBS, who looked at stocks that benefited most from the stay-at-home move. UBS eventually downgraded three shares from neutral to sale, including Peloton Interactive (NASDAQ: PTON), Fiverr International (NYSE: FVRR), en Tough (NYSE: CHWY).

The responses from investors were very different. Chewy shares fell 1%. However, the peloton dropped by 5%, and Fiverr scored the biggest hit with a 10% drop.

Image Source: Getty Images.

Interestingly, however, the comments accompanying the downgrades were not entirely negative. In the case of Peloton, UBS still believes that the pioneer at home, equipment for connected fitness, the market share of regular gyms and fitness centers can win even if the pandemic is brought under control. Brand loyalty is strong, and Peloton has taken steps to increase production capacity. Although the price target on Peloton has been increased by $ 9 to $ 124 per share, UBS believes that the current price is simply higher than the potential rewards.

Similarly, Fiverr has taken advantage of the growing demand for gig economy jobs in the US and globally, and in UBS ‘opinion, it needs to grow even further. This justifies a significant increase of $ 42 in the price target to $ 190 per share. But with the share price far above that, Fiverr is unlikely to grow fast enough to justify exceptionally high valuations at present.

Finally, Chewy has made good use of the category of online pet foods and products, and there is some expansion. However, it will be difficult for the retailer to surpass its sales performance in 2020, which will make the job difficult and cool the stock. UBS kept its $ 75-per-share price target unchanged.

Will growth investment stop working?

First, investors need to understand that there is nothing special about today’s calls against some of the stocks with the greatest momentum from 2020. Investors are finally seeing a one-day impact of calls like this only to regain momentum and the stock to start rising again.

Ultimately, the easiest thing for long-term investors is to determine if they think something has fundamentally changed with the companies whose shares they own. UBS even seems to acknowledge that Fiverr, Chewy and Peloton have good growth prospects.

Presumably, if the share prices were to fall, it would lead the analysts to upgrade the shares. Then the share price would jump, and the chances are good that investors would be whipped and had to buy back at a higher price. With that in mind, you can achieve a better result by only holding stocks if you think they still want to grow in the long run.