Nvidia, Facebook, and Tesla: 'Tennis Balls and Eggs'

About two weeks ago, internet users were asking, "Why is Nvidia stock going down?" after it had plunged close to 20 percent, along with a near 5 percent correction in the Nasdaq Composite Index, which saw it briefly break its 50-day moving average. Market observer Adam Sarhan watched as a potential head-and-shoulders top in the index transformed into a completed double-bottom formation, with the Nasdaq once again sitting near all-time highs.

Three stocks tell the story of a changing a market and offer valuable lessons for those who take the time to simply watch: that of Tesla, Inc. (Nasdaq: TSLA), that of NVIDIA Corporation (Nasdaq: NVDA), and that of Facebook, Inc. (Nasdaq: FB). FB, NVDA and TSLA rallied in unison on the news of, and following the election of U.S. President Donald Trump, leading into 2017. NVDA stock is up by about 63 percent over six months; FB is up near 25 percent and TSLA stock is up about 39 percent, over the same period.

However, just over three weeks ago, on June 21, both NVDA and TSLA were up near 60 percent. Why the difference now?

Tesla's stock would appear to be the quintessential "broken egg" described by MarketWatch co-founder Kevin Marder, unable to convincingly participate as other leading stocks, and the Nasdaq Composite itself, once again sit just off new highs.

"Following an 8%-12% intermediate-term correction or outright bear market, the stocks that bounce back like tennis balls the fastest often represent the leaders on the ensuing advance. Preferably, these stocks will have held up much better than the average stock during the preceding correction or bear. Conversely, the issues that sit there like broken eggs, hardly able to budge off of their lows, do not usually represent leadership vehicles during the next market advance," Kevin Marder wrote in September 2011.

Even though this correction in the Nasdaq didn't amount to much more than 5 percent, Marder's words still ring true.

Since September 2015, this writer has been pointing to Tesla's continual inability to hit sales and revenue forecasts, its continual need for fresh capital injections, and a number of other questions surrounding both the company, and its chief executive officer, Elon Musk. Despite this, TSLA stock has continued to power higher, seemingly in lock step with NVDA, which, financially, is in altogether different ballpark.

Just over the past 90 days, Yahoo Finance reports that the consensus analyst 2017 loss per share estimate for Tesla has been slashed from an already-reduced $1.99 to $5.86. For 2018, a profit of $2.02 is now expected to be a loss of $0.76. Further, Tesla has missed street EPS estimates in three of the last four quarter, by significant amounts.

By comparison, over the past 90 days, analysts have increased their 2018 consensus earnings per share estimate for Nvidia from $2.88 to $3.09 and their 2019 estimate from $3.38 to $3.51. Nvidia has also handily beat estimates in each of the past four quarters, notably by 45.6 percent in October 2016.

Among technology names that led during the most recent rally, including Nvidia; Tesla; Facebook; Apple Inc. (Nasdaq: AAPL); Alphabet Inc. (Nasdaq: GOOG, GOOGL); and Amazon.com, Inc. (Nasdaq: AMZN), only FB shares have been able to find new price highs, again.

Interesting is the fact that, over the same period where NVDA and TSLA dipped by close to 20 percent, FB stock shed only about 5 percent and was the first to reach new high ground: perhaps the most vigorously bouncing of apparent tennis balls in the current market.

Over the past 90 days, the Wall Street analyst consensus for 2017 Facebook EPS has been reduced, significantly, from $5.43 to $4.87; 2018 EPS forecasts have been cut from $6.70 to $6.03. Facebook exceeded analyst EPS expectations in each of the past four quarters, except for its most recent, when it missed views by 7.1 percent, delivering $1.04 on expectations of $1.12.

Earnings are expected from Nvidia between August 9 and 14. Earnings are expected from Tesla on August 2. Facebook reports on July 26, Apple reports on August 1, Alphabet reports on July 24, and Amazon reports on July 27.