Should you be buying stocks near all-time highs?

July 30, 2013, 21:40 pm ET, BY Neal- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Just about everywhere you look in big tech you see stocks at or near all-time highs. Do the underlying fundamentals support the stock prices?

Amazon.com, Inc. (NASDAQ:AMZN) lost $7 million, or $0.02 per share when analysts were looking for earnings per share of $0.05 and the stock still managed to rally to all-time highs despite missing expectations. AMZN’s sales were up 22% from the same quarter a year ago but the company's expenses grew at an even faster rate, resulting in a loss. Most analysts were expecting Amazon to post a profit of $28 million, instead they reported a net loss of $7 million and they lowered guidance. The company’s focus is on growth and not profitability but the market continues to reward the stock.

Netflix, Inc. (NASDAQ:NFLX) is another high multiple stock that happens to be the best performing stock this year in the S&P 500, up 178%. NFLX dropped about 7% after they reported Q 2 earnings last week. They managed to add 630,000 new subscribers, which was within the company’s guidance, but significantly less than last quarter’s 2 million surge in net subscribers and less than many analysts had predicted. NFLX is set on building their subscriber base, rather than raising the company’s margins. The company’s paid domestic streaming subscriber base has increased to nearly 28 million, from 25.5 million at the start of 2013, and 22 million a year before. They have been successful in building the subscriber base but not in building margins. Remember what happened when Netflix tried to raise their subscription prices a few years ago? Netflix stock was above $300, and then fell as low as $52 after announcing a price hike in subscriptions. Now the stock is back in the mid 200’s.

Even Facebook Inc (NASDAQ:FB) has joined the party after posting better than expected earnings and showing the mobile growth the Street was looking for. The stock popped 26% on the news to get back near the $38 IPO price in 2012.

Growth seems to be the focus and valuations don’t seem to matter right now. This is exactly what happened in the Dot.com crash, investors ignored fundamentals and focused on growth and potential profits.  We’ve already seen Apple Inc. (NASDAQ:AAPL) who has solid fundamentals, experience a 40% correction in a bull market.  What could happen to stocks like AMZN and NFLX if they stumble and the market isn’t going up every day?  Many analysts with high price targets will tell investors to “buy the dip” but the real time trading analysis at Stock Traders Daily offers reason for concern.

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