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TheStreet Open House

'Fast Money' Recap: To Buy or Avoid Momentum Stocks?

NEW YORK (TheStreet) -- The S&P 500 and Dow Jones Industrial Average both closed at all-time highs. 

Guy Adami, managing director of stockmonster.com, said many momentum stocks have formed a short-term bottom. He added that Twitter (TWTR), LinkedIn (LNKD) and Netflix (NFLX) all look poised to continue higher this week. 

Brian Kelly, founder of Brian Kelly Capital, said he is not tempted to buy momentum stocks, which he called "broken." He added that the economy is not strong enough to justify the valuation of these high-flying stocks. 

Steve Grasso, director of institutional sales at Stuart Frankel, who is long Twitter (TWTR) and Amazon (AMZN), said investors should buy momentum stocks now. He is not a buyer of the overall market, though.

Karen Finerman, president of Metropolitan Capital Advisors, reasoned that just because momentum stocks have gotten cheaper over the past month, doesn't make the stocks cheap in valuation. 

CNBC's David Faber was a guest on the show. He said International Business Machine (IBM) had a rough first quarter of earnings as sales continued to underwhelm investors. However, the company is making a move out of its slower growth businesses and into higher growth, higher margin businesses, he added. However, a turnaround is hard to pull off for a company the size of IBM, he acknowledged. 

Grasso said the stock seems poised to go lower. He reasoned that the stock is only higher because investors have been rotating out of high-growth stocks and into blue-chip stocks. 

Adami agreed, saying he feels comfortable being short IBM. He added that if the market takes a turn for the worse, IBM will underperform. 

Kelly pointed out that IBM using almost all of its cash-flow to repurchase shares. With cash flows shrinking, the share buyback will slow and therefore the stock will be less valuable as earnings per share growth slows, he reasoned. 

Adami said Rackspace Hosting (RAX) can climb to the mid- to upper-$30s. He suggested investors wait a few more days before considering short-selling the stock. 

Kelly said investors who are long shares of Twitter should take profits after the recent bounce. 

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