Red Flag Alert – Levitated by Lunacy

Live by the algo, die by the algo - 2 new stocks to watch.

Some companies fall through the cracks of coverage not because they’re too small, but because their shares don’t trade enough or are too tightly controlled by insiders...

Yet if the dynamics were a bit different, they’d likely be in the spotlight of short-sellers because their stocks make zero sense.

I’m currently looking at two companies like this...

Neither has real coverage on Wall Street. One holds a pre-recorded earnings call; the other holds a live call but with no analysts and no questions. Still, the stocks of both have more than doubled over the past two years to record highs, with valuations to match: One trades at more than 45-times last year’s earnings; the other, more than 60-times.

And these aren’t penny stocks...

One has a market value of more than $25 billion; the other, more than $5 billion. One has revenue of more than $3 billion; the other, nearly $1 billion. One trades, on average, about $40 million a day; the other, closer to $13 million.

One is up on what appears to be an unsustainable surge of revenue and earnings; the other, as best I can tell, has been rising thanks to being in the right place at the right time with the right products… feeding into the narrative du jour.

Lurking somewhere in the background and powering the shares of both, it would appear, is the silent hand of momentum-fueled, algorithmic-inspired passive investing.

But live by the algo, die by the algo. You might say both are levitated by algo-driven lunacy. And when the trends driving them higher reverse – and they will reverse – the algos will trigger selling as fast as they sparked buying.

As a result, both are being added to my Red Flag Alerts as stocks to avoid. Their names...