Don’t Invest Where All the Love Is

by Hilary Kramer | October 10, 2012 6:00 am

Whether it’s Apple (NASDAQ:AAPL[1]), Google (NASDAQ:GOOG[2]) or a fresh new startup, hot names get a lot of attention from Wall Street. The market loves the buzz surrounding a new product launch, like Apple’s iPhone 5, or intrigue over Google’s latest strategy to expand its presence and influence on the web. Successful stocks, where the sky seems to be the limit on share price, are alluring to many investors.

But sometimes hot stocks are all smoke and no fire, and that’s what I’d like to talk to you about today.

I see so many investors fall for the glitz and glam of hot stocks on winning streaks. Apple and Google are flashy names, but there are others that have the same effect, like (NASDAQ:PCLN[3]) and Chipotle (NYSE:CMG[4]). Investors love to pour money into these stocks, hoping to ride the waves of success.

But we’re far from 2008 and 2009, when the financial crisis had stocks at rock-bottom levels, and the time to load up on these names at bargain prices has passed.

Don’t believe me? Let’s take a look at their charts:

Shares of have ballooned more than 700% since 2009! Can you hear the warning bells? Even after the pullback of the past few months, there’s not much more upside here.

Chipotle Mexican Grill

Chipotle has been on a tremendous run in the last few year, popping more than 400% in that time. It’s clear after recent action, though, that shares are oversaturated, and I even see some cannibalization ahead as investors realized that the company has reached its peak.

Don’t Follow the Herd

So, where should you be investing? As I’ve discussed, it’s all about niche sector stocks right now. Though obscure, growth stocks in niche sectors aren’t difficult to identify, you just have to know where to look. And for that, I say don’t go where the love is. Investors love Chipotle, Priceline and so many more stocks that have reached their growth potential and won’t hand you the solid returns on your investment you can get in smaller-name stocks.

I love biotechs right now, as I think the sector is largely immune from the macroeconomic concerns impacting other industries. I’m also big on select retail stocks, as well as names that specialize in a single product with high and consistent demand. Finally, I’ve been talking with you for a little while now about all of the mergers and acquisitions (M&A) activity I expect up ahead, and I’ve identified some great takeover targets that are worthwhile investments right now.

As we head into 2013, we’re going to see the global economy begin to pick up, making now the time to load up on select names that are on verge of strong growth. Don’t fall for the big names that have already had their run; look for niche stocks that are just revving up.

  1. AAPL:
  2. GOOG:
  3. PCLN:
  4. CMG:

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