Normally in this series, I give you a few companies to consider before buying a popular stock. The idea is to show these other possibilities to combat the problem of getting too excited about a stock and buying on emotion. Frequently, the featured stock is one I like.
But that's not the case with Netflix (Nasdaq: NFLX ) . No matter how many conversations I have with fellow Fools who regale me with arguments revolving around its innovation, its strong culture, its customer focus, Reed Hastings' dreamy countenance, and the company's goals of dominating the living room, I just can't see paying a huge premium for Netflix stock.
I see the company's 16.9 million subscribers (and growing) and I see its bold moves to transition from DVD to streaming. I'll grant you that it seems to be doing all the right things -- all the things AOL failed to do 10 years ago. But a lot of that action is defensive, not growth-oriented. If I'm paying 74 times earnings, I want a clear path to enormous growth.
So today, I'm not just going to throw out names for consideration. I'm going further, by naming six high-growth, high-priced stocks I'd rather buy than Netflix. These are companies I have on my watchlist. I'd prefer them at cheaper prices, but I'd buy each of them today over Netflix.
Amazon.com (Nasdaq: AMZN )
Amazon is also trading above 70 times earnings, and analysts expect five-year growth of a little less than 30%. But I would much rather have Amazon. It absolutely dominates online retailing and has some cloud-computing upside to boot. And by the way, on the side, it competes with Netflix with its online media offerings.
Amazon can grow not just through the rise of the Internet and online retailing but also by eating its competitors' lunches. This is a growth story I get excited about.
Morningstar (Nasdaq: MORN )
Since The Motley Fool is in the investment-research space, too, I can really appreciate Morningstar's business model. There's a reason Tom Gardner has recommended it in our Stock Advisor newsletter service --these guys know how to run a quality shop.
Starbucks (Nasdaq: SBUX )
I think Starbucks' heady growth days are behind it, and I don't believe it should sell for growth-stock prices. But it is a quality company that I'd rather own than Netflix.
Apple (Nasdaq: AAPL )
The thing with Apple is that its profits have been able to keep up with its share-price growth -- it trades at less than 15 times next years' earnings. Apple is almost 30 times the size of Netflix, so growth is theoretically harder, but no one has been able to scale up selling high-margin hardware the way Apple has. Apple's stock price has almost quadrupled in less than two years, but I wouldn't bet against its continued rise.
Intuitive Surgical (Nasdaq: ISRG )
This is the only stock in this article that I own. Although I sold Chipotle too early on valuation concerns, I refuse to do so with Intuitive Surgical. With the company at pretty much the same market cap as Netflix, I'm just much more willing to pay up for a company that can revolutionize surgery through robotics than a company that's trying to stream content other people own.
Bottom line, I'm just not excited about Netflix at current prices. Take that for what it's worth. I could be wildly wrong, and look forward to reading your best arguments in the comments section below.
I think all of the alternatives to Netflix I've mentioned here are quality companies. I'm waiting for price dips to buy into them (or, in Intuitive Surgical’s case, to buy more shares), but with a gun to my head, I'd buy each of them over Netflix at today's prices.
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