The house rules are simple in this weekly column:

  • I bash a stock that I think is heading lower.
  • I offset the sting by recommending three stocks as portfolio replacements.

Who gets tossed out this week? Come on down, Netflix (Nasdaq: NFLX).

If you build it, they will run
I've been a very happy Netflix shareholder -- and subscriber -- over the past eight years, but even I can recognize when the stock is getting ahead of itself.

Shares of the DVD rental service nearly hit a new all-time high yesterday, after JPMorgan raised its six-month price target on the stock from $110 to $133.

The analyst note seems comforting, painting a rosy picture of Netflix as competitors close stores and the company enjoys the advantages of its unmatched offering for unlimited streaming at no additional costs.

Unfortunately, the decision's not that easy.

Yes, Movie Gallery's liquidation and Blockbuster's (NYSE: BBI) tactical retreat would seem to play to Netflix's strength. But bricks and mortar are simply being replaced by chips and sorters.

NCR-backed Blockbuster Express kiosks have quickly ramped up to 4,000 rental machines. Redbox parent Coinstar (Nasdaq: CSTR) has seen its DVD revenue soar 70% over the past year -- considerably faster than Netflix's model.

Netflix will argue that kiosks target a different audience, and that DVDs are likely to peak in a couple of years. Kiosks are limited in selection, while Netflix offers piles of older catalog titles. Netflix even struck deals with a few major studios to keep new releases from its subscribers for the first four weeks that they are available elsewhere.

Yet it seems like the new releases in my Netflix queue always seem to have the longest waits, because of subscriber demand.

The push toward streaming -- something that 45% of Netflix's subscribers still aren't doing -- has given Netflix the courage to mock the optical disc's demise and trade higher. No one is doing this the way that Netflix has, but the company could still pay a price here. Its revenue growth is lagging subscriber growth, as Wi-Fi-ready couch potatoes simply trade down to the cheapest $8.99-a-month plan that offers unlimited streaming.

This should not get in the way of Netflix's sweet position these days. It has quickly grown to 14 million subscribers, with its sights set on topping 17 million by year's end. However, the stock has also popped sixfold since bottoming out less than two years ago.

Netflix now fetches 44 times this year's projected profitability and 33 times next year's target. That's a steep price for a stock with a volatile history. Its near-term prospects are undeniably sound, but a future where optical discs are replaced by commoditized streaming may not be as savory as Netflix would have investors believe.

Good news
As I do every week, I don't talk down a stock unless I have three alternatives that I believe will outperform the company getting the heave ho. Let's go over the three fill-ins.

Google (Nasdaq: GOOG)
I don't think that Google TV is as revolutionary -- or even evolutionary -- as the world's leading search engine would have you believe. No one wants another set-top box in their living room. Outside of YouTube, Google also sputtered with its original video site, and even this year's initiative to begin charging for YouTube rentals. However, you don't bet against Big G when it comes to monetizing digital content. If unlimited streaming is the future, anyone that tries to displace Netflix is unlikely to compete on price, unless it has Google subsidizing the content through targeted ads.

Apple (Nasdaq: AAPL)
Netflix and Apple are best buds these days. Netflix CEO Reed Hastings even made a surprise appearance on stage with Steve Jobs earlier this week, announcing that Netflix streaming would be available on iPhones and Wi-Fi-connected iPod touch devices this summer. However, Apple has the better chance to still be growing in three to five years. It's also substantially cheaper. Despite overtaking Microsoft (Nasdaq: MSFT) to command the country's second-largest market cap, Apple is only trading at 18 times this year's earnings, and less than 16 times next year's projected profitability. In other words, its multiples are less than half what Netflix is fetching.

La-Z Boy (NYSE: LZB)
We can rack our brains in wagering on the digital streaming services or home-theater connectivity devices that will transform our living rooms, but the one constant is that couch potatoes will still need comfy furniture to rest on. La-Z Boy is a good bet here. It won't post its fiscal fourth-quarter results until next week, but it delivered better-than-expected earnings in its previous quarter. Sales growth isn't superb, but it's moving in the right direction as we head into an economic recovery.

I'm not leaving you, Netflix. I just think we should start seeing other people.

Microsoft is a Motley Fool Inside Value selection. Google is a Motley Fool Rule Breakers recommendation. Apple and Netflix are Motley Fool Stock Advisor selections. Motley Fool Options has recommended a diagonal call position on Microsoft. If you're into window-shopping, try any of the newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz has been a happy Netflix shareholder and subscriber since 2002, but he's suddenly afraid of heights. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.