A frightening revelation hit many investors early this spring: Many so-called momentum stocks have ridiculous valuations.
In other words, based on their projected earnings, these stocks appear very expensive. The biotech and social media sectors, two sexy corners of the market that are notoriously difficult to value, got hit especially hard by the ensuing meltdown.
Related: Worried about a bubble? Here are 7 'cheap' stocks
Investors dumped shares of stocks like Twitter (TWTR), LinkedIn (LNKD), Gilead Sciences (GILD) and Infinity Pharmaceuticals (INFI). Other favorites of momentum traders such as Netflix (NFLX), Tesla (TSLA), Pandora (P) and FireEye (FEYE) were also hammered.
While the bleeding eventually stopped, momentum stocks are still subject to severe turbulence. That was on display earlier this week when the Fed called out smaller biotech and social media stocks as potentially "stretched" in valuation.
