Cult stocks are nothing new to the market. Remember when Jim Cramer coined “FANG”? Those four names were some of the most popular picks, but we’ve since seen new growth names and assets join the list.
Cult stocks are an interesting bunch. In most (but not all) cases, they share a handful of similarities.
For starters, these names tend to bring out high emotions from many of their investors. That goes for the longs and the shorts. The former tend to love the product, the management, or both and will seemingly defend the stock for eternity. On the flipside, the shorts can’t stand the company and would love nothing more than to see its stock crash.
The debates between these two camps can be intense and, quite frankly, toxic in some instances. Cult stocks also tend to experience more volatility because of the high emotions surrounding them. That’s not always the case, but it’s not unheard of to see these names make large swings in either direction, or go on sustained runs — whether that be long rallies or deep corrections.
Finally, in some cases, cult stocks can see a complete disconnect from valuation reality. In other words, their valuations make no sense and cannot be justified. Yet, the stocks continue to perform well.
So, with all of that in mind, here are seven “love or hate” stocks to consider:
- Tesla (NASDAQ:TSLA)
- Nio (NYSE:NIO)
- Apple (NASDAQ:AAPL)
- Bitcoin (CCC:BTC)
- Square (NYSE:SQ)
- Realty Income (NYSE:O)
- Peloton (NASDAQ:PTON)
Cult Stocks to Watch: Tesla (TSLA)
“FANG” might have set a precedent for cult stocks, but Tesla has taken it to a whole new level.
It didn’t seem all that long ago when Tesla introduced its Model S electric vehicle (EV) and saw its stock rocket higher in response. In the years following, it was a volatile up-and-down market for TSLA stock.
The bulls passionately defended CEO Elon Musk and the company, while bears continued to attack it with short thesis after short thesis. Then, just when it looked liked the company was running into serious issues in the summer of 2019, the stock found its stride.
Tesla raised additional capital, got its Shanghai plant online and the rest is history. The stock went from a low around $36 in June 2019 to a recent 52-week high of $900.40.
That 2,400%-plus move has made TSLA one of the most valuable entities in the world, with a current market capitalization of more than $800 billion.
So, if this isn’t an extraordinary example of today’s most popular picks, I don’t know what is.
Like its big brother Tesla, Nio has been on one heck of a run. Also like Tesla — and unlike most stocks — NIO stock actually bottomed out well before the March 2020 correction.
Nio did so back in 2019. I guess that was the time to really look over the EV space. After topping out near $14 just days after its September 2018 initial public offering (IPO), NIO stock plummeted to $1.19 in October of the next year.
If you thought Tesla’s rally was impressive, cult-stock lovers will trip over Nio’s 4,800%-plus rally from that low.
The stock has surged back to life and, just like Tesla, all it took was additional capital. Sometimes raising funds can spook investors when it comes to debt or dilution. However, if the company is facing life or death, raising capital is a must and can reassure investors that things can keep on going.
To that end, Nio has reassured its investors just fine. With strong growth, doubled deliveries in a pandemic year, new models and plenty of cash, this EV maker’s bulls remain confident.
AAPL stock is one of the older cult stocks out there, but it still remains relevant.
This juggernaut just hit a new all-time high as it approached earnings. And those earnings? A complete blowout.
Apple reported first-quarter earnings of $1.68 per share for fiscal year 2021, beating expectations by 27 cents. Revenue of $111.4 billion grew by about 21% year-over-year (YOY) and beat estimates by more than $8 billion. I don’t know what’s more impressive, the $111.4 billion in sales or the fact that it was $8 billion ahead of the consensus. Or, is it even more impressive that both earnings and revenue came in above the highest estimate on Wall Street?
Either way, AAPL’s Q1 was magnificent. So, the fact that the stock dipped afterwards just gives investors an opportunity.
Apple won’t be the next BlackBerry (NYSE:BB) and its valuation isn’t horribly stretched, either. The bears will argue the latter or they’ll say that Apple rallied to new highs into the print — that it’s a sell-the-news reaction and perfectly normal.
That’s all fine and well, but let’s keep in mind that Apple has also traded sideways for almost six months and is still at the same level that it was in September. Further, its Services business is growing faster than its overall business and is far more profitable, too.
Who knows how Apple will trade over the next week, month or quarter. But if anything, its Q1 reaffirms that the business is doing just fine.
EVs have a cult following but so does Bitcoin. In fact, one could argue that Bitcoin and cryptocurrencies in general are bigger cult stocks than Tesla and its cohort — except, of course, when it comes to market cap.
But that doesn’t matter. Bitcoin has its fans and that fanbase is seemingly growing by the week.
Bitcoin and cryptocurrencies first became really popular in 2017, as the former raced from a little more than $900 at the beginning of the year to almost $20,000 by December. It had parents, aunts, uncles and even grandparents talking about it.
That was one reason why investors knew it would end badly. Or at least, end badly in the short term. After a dip in March 2020, though, Bitcoin has come roaring back, most recently topping out at nearly $42,000.
With limited supply — one of the main points of Bitcoin — and increasing demand among investors big and small, this cryptocurrency has promising potential.
Speaking of Square, have you ever tried to pitch the bear case online to a group of bulls? In the past, this has been a passionate bunch — there’s been plenty of debate between the bull and bear camps on SQ stock.
For a long time, each held their own as shares traded sideways for almost two years. It took until summer 2020 for Square to break out over its September 2018 highs. In between that wide and choppy range, longs and shorts both thought they would get the better of their counterparts.
In the end, it was the bulls’ victory, as Square simply had too many levers to pull. The destruction from Covid-19 wasn’t enough to bury Square, even though the stock did fall into the $30s at the trough of the selloff.
In any event, shares have rallied massively. Currently up over 600% from its 52-week low, even some bullish investors are likely waiting for a pullback in this one. Square has made it clear it’s not going anywhere anytime soon. As it continues to grow out different business units and expand upon its crypto exposure, watch this pick solidify its status as one of the cult stocks moving forward.
Realty Income (O)
In a move outside of tech companies, Realty Income is definitely one of the cult stocks you should keep an eye on this year.
Calling itself “The Monthly Dividend Company,” Realty has built up a loyal following over the years. O stock first went public in 1994. Since then, it has lived up t0 its name and paid a monthly dividend. It has also raised that dividend more than 100 times now, which averages out to roughly four times a year.
To see this company not only maintain its monthly dividend but also raise it so often is impressive. Plus, it’s even more impressive when you consider that Realty did so through a financial crisis and a pandemic.
Because of the latter, though, shares of O stock still trade at a discount to pre-novel-coronavirus levels. The stock is down 29% from its February high of $84.92. While the economy is likely to have some bumps along the way, this seems like a hearty discount for a stock with such a strong following and solid fundamentals.
Peloton is the youngest name in this group of cult stocks, but it still deserves its place on the list. Here’s why.
After going public in 2019, PTON stock did not fare very well. However, Peloton still had a passionate group of bulls defending it. Many were users of the product and their love for the experience was just not translating to love for the stock price.
Fast forward to Q1 2020, though, and Peloton has really hit its stride. Apparently, a global pandemic was all that the company needed to get in the spotlight. Now, Peloton simply can’t keep up with demand and the stock continues to pedal higher.
Even though Peloton is 12% off its 52-week high, it’s still up more than 350% over the past 12 months. Bears want to tear this company down based on valuation. However, bulls see a deep order backlog and Peloton’s subscription unit as long-term bullish catalysts.
So, PTON is certainly a name to watch after the pandemic cools off. Let’s see if it can maintain the momentum.
On the date of publication, Bret Kenwell held a long position in AAPL.