Seeking Alpha
Profile| Send Message|
( followers)  

The last couple of weeks have been quite interesting to me from an investment perspective. Inflation hedges have been getting drubbed while pricey technology names have climbed to ever higher levels based on the increasingly popular nature of high growth technology investing. Investors who were once too scared to buy anything besides 1% treasuries are no longer gun shy and are reaching for yield and chasing returns like never before. Not since the days of the technology bubble of 2000 have investors flocked to the "hot dots" as they are today. Just take a look at a charts of CRM, BIDU, NFLX, AMZN, YOKU, SNA, and others -- the boom times for the internet names is back, but wait, is it really any different this time?

Investing based on the rear view mirror is usually a bad road to follow and investing in the most expensive stocks according to PE, PB, and price to sales ratios has historically been a terrible strategy during market corrections and selloffs. Newly confident investors are now convinced that markets can simply never go down, and, given that the Bernanke Put has become the Bernanke Call, investors have bid risky stocks up like never before.

While many of the stocks that are making internet commerce, connectivity, and data storage faster and cheaper have rallied and continue to rally impressively, several of the leading stocks in the "new" web revolution have fallen violently in recent weeks. Many of the old tech leaders have fallen by the wayside while many of the most expensive internet names have continued their role as the markets high beta leaders.

These 7 high growth names have fallen by the wayside from their respective 52 week highs, and here is a brief rundown of each of these once exalted but now out of favor stocks, their growth prospects, and their respective valuations.

AKAM -- After losing Netflix (NASDAQ:NFLX) as their client, Akamai has not been able to catch a break. Shares which once traded for over $53 are now sitting around $35, even though the stock is fetching a more reasonable 36X trailing earnings and a 19X forward PE multiple. Akamai is almost heading toward value investment territory, but without the momentum of the Netflix deal and without the support of the ultimate pricey growth stock catalyst, namely Jim Cramer, AKAM should be avoided until it gets below $30 a share at which point I may purchase a call or sell a put on this name.

FFIV -- F5 is an old Fadscan stock of Cramer fame, which has sold of some 30% from its highs. Trading for 25X forward earnings and with a 25% expected growth rate, F5 is certainly not as pricey as it once was. That said, the stock appears to be breaking down from a technical and hype perspective and investors may want to buy this 1.18 PEG stock at a lower price. Selling a January 2012 $90 Put seems like an interesting way to "get long."

CRM -- Salesforce.com is another Cramerican staple which has lost some 15% since its trading highs. CRM is still quite expensive, however, at 280X earnings which is why I am short the name via a put spread. Like F5, CRM is a stock which has displayed tremendous growth and is leveraged to strong trends in the internet space. However, unlike F5, there is no valuation argument for purchasing the stock at a lower price point.

EBIX -- EBIX is actually interesting from a value standpoint which is why I am long a small 1% nominal position via short put options. The company operates in the cloud services industry and focuses on insurance. Growth at EBIX has been quite impressive and with a PE under 14X and a PEG ratio under 1, EBIX looks to be a much better buy than many stocks in this article.

OPEN -- Opentable is a stock that I have been short for a while now. While the round trip up to $116 was not fun, I added a bit to the position as it hit double secret nosebleed probation levels from a valuation standpoint and displayed weakening growth in a saturated market. OPEN's CEO recently left the company, which is never a bullish sign for a company trading for over 150X earnings. I am venturing a guess that the analyst community is biased in the name and wrong as usual.

TZOO -- Another much-hyped and overvalued name is Travelzoo. Although I was unable to find shares to short and TZOO offers no options for investors looking to get short, TZOO is still a decent short sale candidate in my view. After hitting $102 per share and 95X earnings, TZOO is back below $75 and looking a bit weak while still trading fro a PE over 75X.

REDF -- Rediff.com shares are looking quite expensive after vaulting to over $16 per share before collapsing back to around $12.70. The stock is overvalued, a long term money loser, and has yet to find a way to monetize their web clicks and eyeball count, which should remind some investors of the pre Y2K hysteria in which many Aspenites were selling their web companies for millions before they actually turned over their first dollar of profit.

Not all "leading" hot dots are tanking -- here are 3 "leading" stocks that have yet to fall apart in terms of trading well below their respective 52 week highs. Value investors will likely cringe at them, while most investors will wonder if this time things are any different than last time...

BIDU -- Like Amazon, investors have caught the online optimism fever and when combined with the fact that China is just now going viral, BIDU seems cheap to many investors at 93X earnings. Maybe a 40X sales valuation is warranted, but maybe it's not.

YOKU -- Yoku is looking to be the classic "growth trap" for speculators chasing the "hot dot" tech stock. Not since 1999 have companies actually traded for as lofty a price to sales ratio as Yoku does currently. Investors who can stomach some risk could sell the June $60 call options against this name or could buy in the money put options to hedge market risk.

AMZN
-- Amazon is the penultimate tech bubble name and a name I will be looking to short on down days for the overall markets. The stock is free cash flow negative if you back out changes in short term liabilities (which most wise analysts should do as a reflex) and the company trades for a pretty spooky valuation on book value and earnings as well. AMZN is a great business, but a bad investment at current prices in my opinion. The stock is only a few dollars below a recent 52 week high and investors still love the name. The "buy what you know" strategy that many investors are following is not the same as Peter Lynch's strategy because Lynch always suggested buying growth stocks with a PE below their rate of growth -- IE buy what you know but don't pay 300% more than it's worth!

Disclosure: I am long EBIX.

Additional disclosure: I am short YOKU, OPEN, REDF, BIDU, and CRM via options and I am short AMZN

Source: 7 'Hot Dot' Stocks Losing Their Luster