Twitter Takes a Dive; Target Reveals More Bad News

Twitter Takes a Dive; Target Reveals More Bad News

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

After solid gains this week and last, stocks held the line today with just two more trading days remaining in the calendar year. The Dow Jones Industrial Average finished essentially unchanged, dropping one point, or 0.01%, while the S&P 500 was similarly steady edging down just 0.03%.

Twitter shares crashed the holiday party, falling 13% following a dramatic rise over the last few weeks that led shares to nearly double. Shares of the recently IPO'ed social network sold off today after Macquarie Capital analyst Ben Schachter said the stock had climbed "too far, too fast," lowering his rating to sell strictly on a valuation basis. The market's response to Schachter seems a bit inane, considering that even he admitted that nothing has fundamentally changed with the company since he first gave it a neutral rating on Dec. 11. It's easy to call Twitter overvalued, as shares had nearly doubled this month before today's fall, and almost tripled from its IPO price. The stock also sports an insane price-to-sales ratio of 75. Most blue chips, by comparison, trade at P/S's of less than five.

However, the microblogging website is that rare once-in-a-decade kind of stock that has the power to upend the likes of Google and Facebook, two companies with a combined market cap of nearly $500 billion. Like a 17-year-old bombshell poised to sign a six-figure modeling contract, or a star quarterback headed for the NFL, Twitter's earnings potential is nearly infinite, and its valuation defies traditional methods. Looking at its financial history is an utterly ridiculous way of measuring the company's worth.

Target unveiled more bad news in the saga of its hacked customer information today. The big-box chain admitted that the criminals had stolen customers' PIN data in addition to other personal data, saying that the theft was worse than first acknowledged. Data from about 40 million cards was taken in the security breach, though Target reassured its customers that the PIN information was "strongly encrypted." The Secret Service and Justice Department are investigating the online theft. Target shares finished down 0.5%, and have dropped 4% since the news first broke a month ago. The black eye comes at a time when the retailer has struggled with its entry into Canada, and predicted an underwhelming holiday shopping season.

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