This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

A Difficult Quarter for These Six Highflying Stocks

NEW YORK (TheStreet) -- The "Super Six" -- a group of highflying and arguably overpriced stocks -- is beginning to show some cracks.

In the three months since I unveiled this equal-weighted "anti-value" portfolio, the group -- which includes Amazon (AMZN - Get Report)AMZN, Facebook (FB - Get Report)FB,  LinkedIn (LNKD)LNKD, Netflix (NFLX)NFLX (CRM)CRM and Twitter (TWTR)TWTR-- is down 3.6%. Meanwhile, despite a choppy ride, the S&P 500 is up 2.6%, and the Nasdaq Composite has risen 3.2%. (+7%), and Facebook (+18%) are the only stocks in positive territory during that period.

While three months is but a day to some investors, including yours truly, the point of this exercise is to track the path of the most exciting, well-covered, cult-like, priced-for-perfection stocks in the market today. These are the companies that are creating a buzz among investors and getting loads of press coverage.

They are considered must-own stocks by many, but high expectations have propelled them to lofty valuations. In some respects, it's reminiscent of the tech bubble. But, admittedly, these companies are of much higher quality than those of that era. They have rapidly accelerating revenue and decent balance sheets, and most are marginally profitable.

These are not the fly-by night companies with no revenue or prospects that we saw in 1999, but there's still a disconnect between their prices and valuation.

High expectations come with a price. While rapid revenue growth is exciting, there's little room for error. The Super Six trade for an average of 92 times 2015 analyst estimates.

Some believe that earnings -- at this point anyway -- are irrelevant for such rapidly growing companies. Ultimately, however, these companies will need to deliver a meaningful bottom line or valuations will come back to earth. You can't trade forever on revenue growth alone.

This is not a knock on the innovations that these companies have brought forth, and I use many of their services.

Amazon has revolutionized the online buying experience, giving consumers an amazing array of retail choices at great prices, and you never have to leave your house. I am doubtful, however, that the business will ever translate into anything other than a very low-margin business. The problem is the stock is not priced as a low-margin business.

Twitter and Facebook have revolutionized social media, but it is unclear whether they will be here long term. Some probably can't imagine life without either, but consumer tastes change. The next innovations in social media, whatever they may be, could be a threat.

LinkedIn is a nice tool to have in the arsenal, but I can't imagine using anything but the free version.

All of these companies have some value, but are driven by highly optimistic expectations, leaving little room for error. As long as investors are willing to pay for those high expectations, the situation can persist for longer than you might expect. But the past three months have been rough.

At the time of publication, the author had no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AMZN $671.32 -1.83%
FB $117.43 -0.96%
AAPL $95.18 1.64%
GOOG $692.36 -0.84%
TSLA $232.32 -3.92%


Chart of I:DJI
DOW 17,750.91 -140.25 -0.78%
S&P 500 2,063.37 -18.06 -0.87%
NASDAQ 4,763.2240 -54.37 -1.13%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs