All Booms Bust so Look Beyond

NEW YORK (TheStreet) --Most "investors" I know play the momentum.

That is, a company on a winning streak can do no wrong, and one on a losing streak can do no right.

How else do you explain a PE of 290 on Amazon.Com (AMZN) or the seemingly never-ending plunge in valuation for Facebook (FB)?

Now I will be the first to admit that Amazon is a great company. I use it regularly. I even made some money on the shares, buying at $170 a share and selling near the current price of $230 a share.

It's just that in a non-momentum world a stock isn't supposed to zoom upward when reporting that, as FyxNews did, profits cratered, as they did at Amazon last week. And when you beat the Street's estimates, even by a little, as USA Today reported, your stock's value is not supposed to plunge, as it did at Facebook last week.

What's going on? Amazon has gotten what I call the "momentum halo," something of which Apple (AAPL) investors are aware from earlier this year. When investors give you the halo you can do no wrong.

But again, as Apple investors all realize, the halo can be removed suddenly, for no good reason. Apple announced last week that sales were up 23%, and profits up 21%, compared with a year ago, but as SmallCapNetwork noted, the halo expected more and shares cratered.

In fact, Apple is still a bargain. The company's results were skewed by the falling euro and another iPhone will come out soon, and the shares are now trading at a price-earnings multiple under 14. Apple is a value stock.

Amazon's continued halo is based on the expectation that its customers will happily pay sales tax and keep shopping there as the company simply puts warehouses in more cities. Long ago Amazon created a plan to handle sales tax calculations for other sites and profit from it, Internet Retailer reported.

It's more likely that the Amazon halo will be tarnished by growing competition in cloud computing. Amazon dominates public cloud with its EC2 system and cuts prices aggressively, but I guarantee that competition will increase as Google (GOOG), Microsoft (MSFT), Dell (DELL), Rackspace (RAX) and others ramp up their own efforts.

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