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Now that stocks are down some 20% from their highs, most investors think that stocks are a great buy and that "leading" momentum stocks in particular are the best place to invest. The only problem here is that many of the "high flyer" stocks with extremely high betas are not down enough to teach the retail investor about loss right now. The investor sentiment indicators are actually still too bullish here with bulls over 43% versus bears at around 24% even with the tremendous sell off in the averages. To me, the valuations in the high beta leaders are still too high versus the growth names that have been thrown out with the major averages.

In other words, to me it appears that the babies are getting tossed out instead of the bathwater, and this does not bode well for the overall markets going forward. In today's market, top line growth has become the ultimate panacea. The fact that Chipotle (NYSE:CMG), Opentable (NASDAQ:OPEN), LinkedIn (NYSE:LNKD) and so forth were up on yesterday's big down day is troubling in that it shows that speculators have not been burned hard enough to learn their lessons. Let's look at the following high valuation stocks versus dirt cheap names that investors have thrown away:

Pricey Bathwater

(NYSE:SPG) -- Simon Property Group owns Mall Reits and while this is a well managed company, falling stock and real estate prices surely will not help shopping demand and retail spending. Simon is trading for around 30X free cash flows, and investors can find better free cash flow in the telecoms and technology stocks. The downgrade of debt and the collapse in various banking shares also place pressure on the Mall Reits because of credit issues -- the REIT sector is a boom bust type of sector and if the financials are telling us anything it is that now may be a good time to sell. SPG is still within 10-15% from the all time highs set earlier this year.

(CMG) -- Chipotle is another high flyer that investors love. While the company is a fantastic business, the stock looks to be a risky investment from a valuation perspective. With a growth rate in earnings of 10% or so currently, today's earnings per share of $6.40 or so will grow to around $13 in 7 years. At a 30 PE ratio, the stock should be worth around $390 seven years from now provided that consumers will continue to love this chain. While I love the food at Chipotle and think the company is best of breed, the price to earnings of 52X makes this burrito chain a bit too spicy for my tastes.

(LNKD) -- LinkedIn: After working at an M&A boutique in Scottsdale with Steve Cuthrell, the head of M&A with Rare Medium in the 1990's tech bubble, I learned a lot about valuation of technology names. One thing I learned was that no matter how high a tech stock is, it can always drop 50% from where it is now. Steve taught me that the relative valuation game is deadly for investors, because when things head south they don't come back -- just ask News Corp (NASDAQ:NWS) about Myspace for confirmation on this. Cuthrell was a genius, and his words of caution stuck with me all these years -- what goes up may crash back down. If you think LNKD is cheap at 500X earnings, just think how cheap it will look at 250X or 50X earnings ... at 50X earnings, the stock would have to fall some 80% from current levels. As long as investors are willing to pay five hundred thousand dollars for a Chevrolet, the overall market is in serious trouble. Anything can happen, and Murphy's Law dictates that bad things happen to well intentioned technology savvy investors.

(NASDAQ:AMZN) -- Amazon is another name that troubles me. If investors are willing to only pay 4X earnings for RIMM which is actually growing, although slowly, and 100X earnings for Amazon, which saw falling earnings, there is something incredibly wrong with the equity markets. The overall financial picture out there is extremely negative and the highest valuation stocks should be hurt the worst -- this is a bubble and the optimism is unjustified.

(NYSE:CRM) -- Speaking of bubbles, it's not too late to short Salesforce.com -- this tech bubble name at 400X earnings is relying heavily on future earnings growth to make up for today's astronomical valuation. The trouble is that we are already in a double dip (or big single dip) recession and companies like Salesforce will see business slow sharply. Why not buy a Goldman Sachs or Johnson and Johnson before buying shares in a stock like CRM which is speculative at best and a sucker's bet at worst?

(NASDAQ:SINA) -- With a strong down trend in equity markets, it's crazy that SINA is trading for nearly $100 per share given that the overall markets are trading for just 11X forward earnings. SINA is a high growth business, but the growth comes from an already overvalued base for the stock at current levels.

(NASDAQ:DNKN) -- Dunkin is trading for a steep 39X earnings and the company is not exactly an early stage technology firm. I would rather be short than long in DNKN because the markets are too bullish on this stock when compared to a McDonalds. MCD trades for half of the valuation of Dunkin and McDonalds serves better food in my opinion.

Undervalued Babies

(NASDAQ:MSFT) -- Microsoft will one day be the leader in cloud computing. The reason being is that most retail investors think cloud computing will one day replace software altogether and once the general public "believes" something like this, their belief makes it true. That said, MSFT at 7.5X earnings with a huge cash balance makes these shares a far better investment than CRM, SFSF, VMW, etc... in our view. If we had to pick a "cloud" name we would choose VMW or FFIV, but we note that both of those stocks are in a technical downtrend currently.

(NASDAQ:INTC) -- Intel shares are now trading for around 7X forward earnings and around 4X operating cash flows, which is quite cheap considering the company's strong revenue and earnings growth. Intel has executed very well in recent years, but investors don't stand to make a ton of money here unless that execution continues in the years ahead. While we see the economy slowing, INTC looks to be too cheap to ignore and we are re-entering the name via short January 2012 $20 put options.

(NYSE:KND)-- Fears in healthcare REITS have sent shares of Kindred Healthcare (a hospital owner) into the half book value department recently. We like this company anywhere below 70% of book value for a longer term holding and we are short the January 2012 $12.50 put options for around $2.50 per contract. KND is a cheap stock, but there is no telling how cheap the stock could become in a strong bear market. By starting your position small and adding to the stock on weakness, investors have a better shot of making money over the longer term.

(NYSE:HES) -- Hess is now trading for around 6X earnings and for around book value after the shares were crushed recently for missing earnings slightly. The stock is down from $85 to $53 or so in a matter of weeks, and we like this name for a longer term play on weaker currencies and higher oil prices. Selling the longer dated put options looks to be the best way to "get long" shares of Hess.

(NYSE:BRK.A) (NYSE:BRK.B) -- Berkshire shares have fallen too far in our opinion and now that the stock is trading for book value and for nearly 12X earnings we are buying the name directly and selling put options on the name. I view the drop in Berkshire as a gift, while the drop in the overall market may take longer to recoup given the political and economic headwinds the global economy faces going forward.

(NYSE:OSK) -- Oshkosh Truck is down around 50% in the past month, and we like this Carl Icahn holding trading for 4X earnings. OSK shares have been hammered on spending cut fears, but I seriously doubt these fears will manifest in lower earnings for OSK over the next five years. When you can buy a great business like OSK for 3-5X free cash flows and you have patience, you will be rewarded with profits.

Disclosure: I am long BRK.B, OSK, INTC, MSFT, HES, KND. I am short CRM, LNKD, CMG, SPG, SINA, DNKN, AMZN

Source: 13 Stocks That Show We Are in a Bifurcated, Crazy Market