Are These 5 Momentum Stocks Broken?

After gaining 1,000 points this month, the Dow (NYSE:DIA) paused on Tuesday as it fell over 200 points.  Although some investors may see this pullback as a buying opportunity, investors may want to steer clear of these momentum stocks that appear to be broken.

Netflix (NASDAQ:NFLX) continues to scare investors and customers away.  Shares fell off a cliff Tuesday after the company reported a loss of 810,000 subscribers in the third quarter.  Shares touched $300 in July and never looked back.  Shares are down 67% in the past 6 months and currently trade near $77. (See “Netflix Expects Losses to Continue in 2012“) JP Morgan (NYSE:JPM) has downgraded the stock from overweight to neutral, with a price target of $67.  Citigroup (NYSE:C) also downgraded the stock to neutral.  On the bright side, Whitney Tilson, who was preciously short Netflix, announced he is now long on the company as he sees value at current share prices.  Netflix competes for viewers with Dish Network (NASDAQ:DISH), Amazon (NASDAQ:AMZN), and Time Warner (NYSE:TWC).

Don’t Miss: Why is Oil Having a Field Day?

Year-to-date, shares of Green Mountain Coffee Roasters (NASDAQ:GMCR) are up 98%.  However, investors may want to book profits quickly.  Shares have fallen 20% over the past week, while competitor Starbucks (NASDAQ:SBUX) has only declined 2.4%.  Last week, David Einhorn, president of the activist hedge fund Greenlight Capital, called out Green Mountain Coffee Roaster’s management for failing to adequately address accounting questions.  Einhorn made these remarks in the context of a speech he gave at the Value Investing Congress today, saying, in part that he thought Green Mountain’s latest earnings release was “perhaps to good to be true.”  Bill Chappell, analyst for SunTrust (NYSE:STI), disagrees with Einhorn’s analysis.  Chappell stated that Einhorn used SunTrust research reports without permission and released an error ridden rehashing of the company’s analysis to the public on Wednesday.  Among the errors pointed out by Chappell, Einhorn reportedly double-counted packaging costs for the company in his “profit to split” analysis. Einhorn also estimated the company’s EPS at $3.50, when SunTrust estimated a much higher $9.

Sometimes it’s a broken business model that kills a stock, sometimes its fraud.  Between Chapter 11 bankruptcy, a FBI raid, and a blown $500 million federal loan guarantee, Solyndra brought the solar energy industry to its knees.  House Republicans are expanding their investigation of Solyndra to include other solar power companies, including First Solar (NASDAQ:FSLR) and SunPower (NASDAQ:SPWRA).  Shares of First Solar fell 25% Tuesday, and are down 66% year-to-date.  SunPower is down 29% year-to-date.  First Solar shares fell especially hard on Tuesday due to the company’s CEO stepping down after less than 3 years on the job.

Since trading near $80 in May, shares of Molycorp (NYSE:MCP) have been sliced in half.  The rare earth company (REMX) has been reeling under the weight of a downgrade from a perma bull on the stock, Mike Gambardella from JP Morgan (NYSE:JPM). His price target has been slashed from $105 to $66 owing concerns to rare earth prices declining on forecasted world demand being cut.  Gambardella also claims that the price decline has been triggered by Chinese speculators who had initially driven up the price. Gambardella has lowered his 2011 EPS from $2.44 to $1.75, 2012 from $6.10 to $3.15 and 2013 from $14.55 to $11.20.

Investing Insights: Weak Consumer Confidence Hasn’t Shaken These 6 Stocks.

More from The Cheat Sheet