These Stocks Are Flying Too High

 | Sep 12, 2013 | 11:49 AM EDT
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There are a lot of ways to measure froth. Many would say that you gauge it by looking at the action in the stocks of highflying companies that don't have highflying earnings per share.

They look at the action, say, in Tesla Motors (TSLA) and Netflix (NFLX) and declare it insanely and unsustainably bullish, given that Tesla has rallied 386% and Netflix has galloped 225% since the year began. I get that. While there are many good things happening at Tesla, including strong sales for its new cars, and Netflix has had tremendous success in original content such as "House of Cards" and "Arrested Development," I don't blame a soul for wanting to take profits in either name, as these are cult stocks, and cult stocks don't have a lot of rhyme or reason to them. They are just loved. My hat is off to the Morgan Stanley analyst who nailed Netflix and downgraded it today. What a call.

To me, a better sign of froth is when regular stocks react to regular upgrades. For example, today Walgreen (WAG) gets added to the Conviction Buy list over at Goldman Sachs, and the stock pops an astounding 2 points. On an upgrade! Or how about Kroger (KR)? I have been saying it would have an upside surprise when it reported today. That's exactly what it did, and I figured the stock could have a nice gain. But it immediately flew up a dollar as if the quarter were incredible, which it wasn't. it was just plain old good.

Or how about the action in Dominion Resources (D) when it just got approval to build an export terminal for natural gas at its Cove Point facility? This was a totally expected event, something that you would have heard repeatedly when we interviewed CEO Thomas Farrell many times on "Mad Money." But the stock immediately traded up 3 points on the news. This is a utility, for heaven's sake. The company is also going to form a master limited partnership with some good Marcellus shale assets, and that's some positive news, but the idea that it should be up 3 on that is also fanciful. The stock settled down later, but the enthusiasm just got way ahead of the story.

Plus, Cheniere Energy (LNG) jumped up big on the Cove Point approval news. Huh? They are competitors, for heaven's sake. Cheniere should be going down, not up. That's just crazy.  

How about Yahoo! (YHOO)? The consensus about yesterday's interview with the CEO, Marissa Mayer, is that it was a terrific cheerlead, a great sign that things remain on course for the turnaround. But I heard nothing new that was substantive. No matter, the stock jumped a buck on it.

Let's not forget Facebook (FB), which goes up every day on every single price target bump, bumps that are happening only because the stock has been going up. It's a self-fulfilling prophecy.

Now, I am not saying that stocks shouldn't be going up on legitimate good news. There's nothing frothy about Qualcomm (QCOM) going up on a renewed and aggressive buyback. And negative news, a downgrade of Cliffs Natural Resources (CLF) for example, did take the stock down after a nice run.

But the idea that Wall Street research can have this positive power is something that signals either a reversion to the bull markets of the 1980s and 1990s, long-lasting runs that were led by bullish Wall Street, or a sign that the market has just gotten way ahead of itself and it just plain too frothy for me.

I am thinking right now that it's the latter. Maybe, perhaps, I will be willing to flip back into 1980s and 1990s mode and just admit that caution has become a big mistake, but right now I would prefer not to add money to the stock market and instead pull back a bit and wait for a better, less frothy entry point. Somehow I think I will get that chance. 

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