Why Netflix, Facebook, and Micron Shares Plunged Today

Markets Motley Fool

What happened

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Shares of many high-performing tech and consumer goods companies were in line for some drastic corrections this Wednesday. Netflix (NASDAQ: NFLX) dove as much as 7.5% lower, Facebook (NASDAQ: FB) took a 4.6% haircut at most, and Micron Technology (NASDAQ: MU) suffered a 9.7% drop as of 3:20 p.m. EST.

So what

None of these large market corrections were based on any particular news from the companies in question. They do have one thing in common, however: market-crushing stock charts in 2017.

The chart squiggles above include three sharp drops at the very end, but all three companies are still beating the S&P 500's 17% gains by wide margins.

Now what

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The market sometimes acts in irrational, unpredictable ways. Today's market action is a fine example of this inconvenient truth.

I find it obvious that these three stocks have earned their share price gains the hard way in 2017.

  • Netflix is crushing everybody's subscriber estimates, including its own, and often exceeds Wall Street's earnings targets as well. The streaming video veteran's path toward large and sustainable profits is only getting clearer.
  • The memory chip market has historically been prone to brutal price wars, leaving investors nervous about the seemingly unavoidable crash that follows after any significant period of relative stability. But things are different this time, because the last two price wars cleaned out the weak hands from the memory market and left just a few market leaders with much better control over their street prices. Micron is among these survivors, and there are no signs of another oversupply situation.
  • Facebook just keeps growing and growing. The company now boasts over 2 billion monthly active users, and will invest billions of dollars in high-growth markets like artificial intelligence and virtual reality next year. Wall Street analysts have set their earnings estimates too low in 18 of Facebook's 19 latest quarterly reports.

These are gifts that keep on giving, but investors can find it tricky to pinpoint the fair value of these hypergrowth stocks. Sometimes, they take profits or make a correction for no obvious reason. These corrections often happen toward the end of each calendar year, as investors both small and large rebalance their portfolios for the new year.

That's the whole story today. You could treat this pullback as a buy-in window, but none of the drops were terribly large. All in all, it's just another day in the weird and wonderful stock market.

I expect Facebook, Netflix, and Micron to make a full recovery in a few days, just without the fanfare you get around a quick drop of several percent in a single day.

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Anders Bylund owns shares of Micron Technology and Netflix. The Motley Fool owns shares of and recommends Facebook and Netflix. The Motley Fool has a disclosure policy.