Two Stocks So Hard to Own

 | Apr 03, 2014 | 6:51 AM EDT
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You need only to look at two charts to know why the new economy stocks are so much harder to own than old economy stocks. Check out the charts of FireEye (FEYE) and Splunk (SPLK), which, for all intents and purposes, might as well be the same exact picture.

Since 2014 began, FireEye, aided by a wildly-acclaimed cyber-security package, has seen its stock go from $40 at the beginning of the year to $96 in the first week of March and now back to $61.

Splunk, which does big data analytics -- don't they all? -- with a cyber-security kicker, started the year at $69, rallied to $96 in the last week of February and is now at $71.

What happened to move both stocks higher? They reported phenomenal sales, with Splunk growing revenues at 53% and FireEye giving you an 81% sales increase. These results were nothing short of spectacular and no one can doubt that these aren't two of the fastest-growing companies in the universe. In fact, I have never heard anything but great things from any analyst I have talked to about their products or their managements. These are the admitted and acknowledged gold standards of cyber security and big-data analytics. Given that cyber threats and big-data generation are probably the two biggest secular growing themes out there, these two are the most-natural high-growth ways to play them.

So what happened to their stocks? FireEye reported its blowout revenue quarter Feb. 11 when the stock was at $76 and it proceeded to trade right up to $96. It was an amazing run, but it's been downhill ever since, particularly of late. FireEye had 14 million shares priced at $82, a deal that was announced when the stock was much higher and the stock hasn't been able to handle that supply ever since. It's like a gigantic 14-million-share game of hot potato, odd given that this not some small-cap concern. It's $20 lower and it still hasn't found its footing.

For Splunk, when I checked around, I couldn't find anything until I saw a wave of insider selling and a large block of merchandise that hung over the stock, a mysterious block, 1.7 million shares, that traded at $70 the other day. This company's stock, even though it is an $8 billion company, simply couldn't withstand that onslaught.

I think this kind of selling is what is killing these unseasoned stocks. They went up a great deal on just very small supply. They went up on revenue growth, not earnings. They are not going to announce buybacks to cushion the fall. They aren't going to give you any dividends anytime soon.

They will just give you more growth. But will that turn these stocks around? Or will more growth just bring out more insiders, who want to cash in on that growth. Do we now have to wait for a takeover for something good to happen here? And given that there is a ready new supply of offerings in these spaces, why not just ring the register of these two and go home? It isn't like they are cheap. They were NEVER cheap.

Now, consider these stocks with the likes of the industrials that are flying right now. They are the polar opposite of Splunk and FireEye. They are seasoned companies that tend to have good dividends, good buybacks and a solid shareholder base with very little insider selling and very little insider stock to begin with.

They are easy to own.

Splunk and FireEye seem downright impossible to own when you compare them. Yet that's exactly what people are doing and the comparisons, at least when it comes to Splink and FireEye, are positively odious.

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