'Bubble' stocks like Beyond Meat and Peloton were supposed to blow up, but the opposite happened

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Peloton machine

Source: Peloton

Many on Wall Street were convinced the usual playbook would occur when this market and economic downturn hit.  Bubble-like tech stocks that led the way up would get crushed as a bear market exposed their hype and sent stock speculators scrambling.

But the opposite has happened. 

The names skeptics used to point their fingers at are actually among the biggest winners this year, and their strength pushed the tech-heavy Nasdaq Composite into positive territory on Thursday.

High-fliers Amazon and Netflix were the among the first stocks to fully make back the losses from the coronavirus sell-off that triggered the fastest bear market on record. Meanwhile, shares of Beyond Meat and Peloton rebounded violently, and are now up more than 50% each this year. Tesla is up a whopping 86%.

It turns out society shutting down to curb the spread of the coronavirus is good business for many of these speculative names. Investors flocked to their old loves Netflix and Amazon in the stay-at-home age, while cheering positive news from smaller players like Beyond Meat and Peloton.

Beyond Meat reported that sales more than doubled in the first quarter thanks to newfound demand from its partners and retailers looking to bulk up on alternative meats in an age when meat plants are shutting down because of the virus risk.

Peloton said it held its largest class ever last week, with more than 23,000 people streaming it from home. The shares surged on Thursday after it said sales were up 66%.

That is not to say these stocks didn’t suffer from the market’s historic rout at first as investors dusted off the old playbook. In fact, Beyond Meat, Tesla and Peloton all fell more severely than the S&P 500 during the rapid plunge.

“Several of these stocks did get hit hard initially,” said Matthew Maley, chief market strategist at Miller Tabak, “It was only after the worst was over that people came running back into those names.”

“Once investors saw that the Fed was going to provide a strong safety net, they came back into the market, but they still wanted to weight their holdings towards those that would actually benefit from the lock-down,” Maley said.

‘Cult of personality’

Tesla is a different story. 

The stock had a massive run earlier this year, driven by analysts upping price targets and short-covering   by those who bet against Elon Musk’s automaker. Many were worried Tesla might be a speculative bubble that sometimes occurs near the end of bull markets.

“Tesla is its own cult of personality,” said Dan Nathan, the principal of RiskReversal Advisors. “When the history books are written on this period of the stock market, this is going to be a big asterisk.”

Shares of Tesla surged more than 40% in the past month, boosted by strong quarterly results with better-than-expected deliveries even amid the coronavirus pandemic.

Getting crowded again

Maley warned that these popular names are becoming very crowded again on the way back to the top. 

“If you look at the average daily volume in those names recently…and for the other three names…it has blown through the roof,” Maley said.

For example, Peloton has already traded 30 million shares on Thursday as of midday, compared to its 30-day trading volumes average of 8.6 million shares, according to FactSet.

“The higher volume in these names is coming at a time when the total volume in the market place has started to fall,” Maley said. “So that is another reason to think the buying has been quite concentrated in these names and thus they’ve become quite crowded.”

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