NEW YORK (Real Money) -- You know what's bizarre about the five best-performing stocks in the S&P 500 last year and the five worst-performing stocks in that index? After tremendous advances in the winners, I still like most of them -- and after horrific declines in the latter, I still hate most of them.
One of the great exercises in investing, though, is to force yourself to question assumptions about everything from your favorite stocks to those you most abhor, and 2013's crop of beauties and beasts is no different. It's times like these when you have to play your own contrarian, to really go against yourself and see if you can find an unloved ugly duckling that could turn into a beautiful swan. Or, conversely, you could discover which beautiful swan may turn black, obliterating your gains.
Today I want to look at the S&P's five biggest winners for 2014 and see them through a jaundiced eye.
First up: Netflix (NFLX). Here's a stock that put in a 297% gain for 2013, with a rally from $92 to $368, and it finished the year with market capitalization of about $22 billion. Netflix is a phenomenon -- one of the cult stocks that I talk about, along with Solar City (SCTY), Twitter (TWTR) and Amazon (AMZN). Although like the latter, I am still recommending that people can own Netflix.
Why? Because I like to do market-cap analysis. What drew me to Netflix in the first place was its tremendous number of satisfied users, of which I count myself one. My kids told me about Netflix well before its near-300% gain, and they showed me how to stream video over my Wi-Fi in a way that made it so I never had to mail in a diskette again. We are not alone in loving it. More than 31 million Americans use it, and another nine million abroad seem to love it, too. When Netflix shares were lower, I urged Apple (AAPL), Microsoft (MSFT), Yahoo! (YHOO) and Facebook (FB) to buy it, and use some of that cash for growth. Netflix represents a real chit in the old tech game that's working: the holy trinity of mobile, social and the cloud that I identify in Get Rich Carefully as the most important multiyear trend currently out there.
You know what? There's a simple, dirty truth about Netflix: We would hate to admit it out loud, but we would all be willing to pay more for it. That's how much we love it. To me that means there's no way this company is worth only $22 billion. It's a concept too big for its market cap. I think the stock will go higher until we see subscriber growth peak. But, because that eventually has to happen, I think if you own Netflix you should switch into deep-in-the-money calls in order to protect yourself on the downside.