Membership in the club known as the Four Horsemen of the Nasdaq seems like it is always changing. At one point in the 1990s, that club was comprised of Cisco (NasdaqGM: CSCO), Dell (NasdaqGM: DELL), Intel (NasdaqGM: INTC) and Microsoft (NasdaqGM: MSFT).
Then it was Oracle (NYSE: ORCL), Sun Microsystems, EMC (NYSE: EMC) and Cisco with some adding JDS Uniphase (NasdaqGM: JDSU) to the group as well.
A few years ago, it was Apple (NasdaqGM: AAPL), Google (NasdaqGM: GOOG), Amazon (NasdaqGM: AMZN) and, if one can believe it, BlackBerry (NasdaqGM: BBRY), the artist formerly known as Research in Motion.
These day the four horsemen are Facebook (NasdaqGM: FB), Netflix (NasdaqGM: NFLX), Tesla (NasdaqGM: TSLA) and NYSE-listed LinkedIn (NYSE: LNKD). Prior to Wednesday, the average year-to-date gain for that group was 210.2%. Facebook was the “laggard” with a 2013 gain of 88.1%. Elon Musk’s Tesla was the lead having risen nearly fivefold.
The party for the four horsemen may be drawing to close, at least temporarily, as a rising number of market participants question the lofty valuations associated with these names. Over the past week, Tesla has plunged 10.5%. Netflix is lucky to be modestly higher after Tuesday’s sell-off. [Curtain Could Fall on Social Media ETF Party]
When it comes to the ensuing impact sustained retrenchment in these story stocks could have on various ETFs, interestingly, Netflix is least problematic. Although CEO Reed Hastings questioned the price of his own stock and Carl Icahn has slashed his stake in the company, Netflix is not a tail wagging the dog of many ETFs. As of Tuesday, it was hard to find an ETF that even had a 4.5% weight to Netflix. [ETFs for Netflix Earnings]
However, as Risk Reversal notes, charts for Tesla and LinkedIn, do not look so hot at the moment, and that is not good news for several ETFs with decent allocations to the stocks.
Tesla has seen its prominence in the First Trust NASDAQ Clean Edge Green Energy Index Fund (NasdaqGS: QCLN) dramatically reduced from the largest to fifth-largest holding, but it is still almost 7% of that ETF’s weight. The Market Vectors Global Alternative Energy ETF (NYSEArca: GEX) allocates 9.2% to Tesla. The two are among this year’s top-performing sector ETFs due in large part to Tesla, but that sword could cut both ways if valuation questions linger. [Tesla Fire Could Burn These ETFs]
As for Facebook and LinkedIn, there are ETFs that hold both stocks, but none are as heavy in those names as the Global X Social Media Index ETF (NasdaqGS: SOCL). SOCL, which has seen a significant percentage of its $95.5 million in assets under management come in this year due to social media sector ebullience, allocates a combined 22.5% of its weight to Facebook and LinkedIn.[A Buying Opportunity in the Social Media ETF]
As such, SOCL has the valuation to match. A P/E of almost 39 and a price-to-book ratio of nearly 4.8, according to issuer data, are just what Internet stock doubters are looking for when it comes to punishing the sector.
Global X Social Media Index ETF
Tom Lydon’s clients own shares of Apple, Amazon, Google, Facebook, Intel and Microsoft.