Everybody knows and loves popular stocks and companies. To illustrate my point, I’ve written a poem about some of the most recognizable names on the market. Here goes…
A is for Apple, whose iPhones I buy
B is for Boeing, whose airplanes I fly
C is for Costco, a cheap place to shop
D is for Disney, for kids, mom and pop
E is for eBay, to sell what you’ve got
F is for Facebook, for friends (close or not)
G is for Google, whose searches go deep
H is for Hyatt, a nice place to sleep
I is for Intel, for chips you can’t eat
J is for JetBlue, which had leather seats
K is Kellogg and breakfast confections
L is for LinkedIn and workplace connections
M is for Macy’s, a famous old store
N is for Netflix, and movies galore
O is for Oshkosh, and specialty trucks
P is for Paypal, it’s safer than bucks
Q is for Qualcomm, and mobile phone tech
R is for Ryder, whose trucks go like heck
S is for Starbucks, for coffee and sweets
T is for Twitter, conveyor of tweets
U is for Ulta, for beauty-full stores
V is for Visa, which knows credit scores
W is for Wal-Mart, and deals most fantastic
X is for Xcel, both gas and electric
Y is for Yahoo!, useful for browsing
Z is for Zillow, a site to find housing
What do you think? Did you find this fun? Cute? Annoying?
Whatever your reaction, the above works because most of those companies are well known names with popular stocks (or at least they once were popular).
If I had started with this…
A is for Acacia, which siliconizes optical interconnects
B is for Burlington, the national off-price retailer
… you might not have been as engaged (assuming you were somewhat engaged by my version).
And so it is in the real world.
We pay attention when we hear familiar names, or topics we care about.
But we’re less attentive, less interested, when the information is about something that isn’t already in our brains.
In short, we prefer familiar paths to unfamiliar.
And thus we miss out on opportunities!
The Problem with Being Famous
Sure, it’s easy to read about popular stocks like Apple (AAPL) and Netflix (NFLX). We all know enough about those companies and their wares to have opinions.
But the problem with limiting yourself to popular stocks is this:
• They might have already had a big run.
• They might be overvalued.
• Worst of all, they might have more downside potential than upside.
Just look at Chipotle Mexican Grill (CMG), which is now 44% off its high of last year, thanks to its heavily publicized troubles with food sanitation.
CMG had a great 10-year run. Consumers and investors loved it! But after everyone has bought a stock, and there is no one left to buy, the sellers can take control after any misstep.
And after a big mistake—remember Enron, which Wall Street absolutely loved when it was going up?—a popular stock can get killed.
Undiscovered Gems
That’s just one reason that I prefer undiscovered stocks—stocks that have not yet been bought by every Tom, Dick and Harry—and every mutual fund on the planet.
For example, Acacia Communications (ACIA), which I mentioned earlier, is a hot technology company that’s growing like a weed, thanks to products that speed up cloud communications.
The stock came public in May of this year, it was recommended by Mike Cintolo in Cabot Top Ten Trader in July, and Mike’s loyal readers now have a profit of 134%. Pretty good for three months!
Here’s the chart today, building a nice base above the 100 level.
On the slightly more conservative side, Burlington Stores (BURL), better known as Burlington Coat Factory for its 567 stores, is somewhat better known but it’s far from well loved.
Yet the stock is also acting well, and Mike’s Cabot Top Ten Trader readers who bought this when he recommended it back in June are now looking at profits of 26%. Not too shabby.
Furthermore, BURL is probably at a good buy point right here, sitting on support at its 50-day moving average.
I could give you many more examples—one from each of the other letters of the alphabet, easily. (Well, Q and Z aren’t so easy.) But you get the point.
If you want to succeed as an investor, it pays to look at less popular stocks, and Mike Cintolo’s Cabot Top Ten Trader, which every Monday recommends 10 high-potential growth stocks, is the best way to learn about them.
