By Andrew Leckey
September 17, 2006
In investing, the cool factor is fun but difficult to pin down because popularity can be an unreliable way, at best, to select investments.
For example, Internet firms Yahoo Inc., Amazon.com Inc. and eBay Inc.--once sparkling topics of cocktail conversation--have suffered stock-price setbacks of 28 percent, 35 percent and 34 percent, respectively, this year.
Much-discussed satellite radio also has tanked despite signing up expensive talent and programming. XM Satellite Radio Holdings Inc. is down 56 percent and Sirius Satellite Radio Inc. has lost 41 percent this year. But cool seemingly lives in 2006:
-- Akamai Technologies Inc., which helps clients monitor Internet traffic, has a growing buzz. Its investors have bragging rights: Their stock up 106 percent this year after a 53 percent gain last year.
-- Ethanol has been deemed cool by the public in fits and starts, propelling Pacific Ethanol Inc. to gains of 82 percent last year and 50 percent this year despite some recent slippage.
-- Trendy digital video recording firm TiVo Inc., which shed 13 percent last year, is up 52 percent in 2006. But it may be late in the game for investors to hitch a ride on either TiVo or Pacific Ethanol.
The buzz surrounding closely watched or recently discovered stocks can be on the mark. But such gossip can just as easily be overblown, belated, inaccurate or short-lived.
"Whenever you hear buzz about a company, ask yourself how much is already built into the stock price and whether you're coming late to the party," said Barry Ritholtz, chief market strategist with Ritholtz Research & Analytics in New York. "Then ask yourself if you're willing to hold long term or are just trading, which makes a difference."
"The risk is that once a stock is being discussed at a cocktail party it probably is too late," said Timothy Lutts, editor of the Cabot Market Letter in Salem, Mass. "Pacific Ethanol peaked in early April on a lot of ethanol talk and has since fallen, though there's a chance it will regain its upward trend."
The conservative ethanol bet is Archer Daniels Midland Co., Lutts said. Meanwhile, General Motors Corp. and Ford Motor Co. received truckloads of negative publicity. Yet they're cheap and could have upside, he believes. ADM is up 60 percent, GM 64 percent and Ford 14 percent this year.
Much of the current excitement, though, surrounds technology.
Media company News Corp., up 18 percent this year, generated a buzz when it bought MySpace, the wildly popular online teen site.
"For somebody from Australia in his 70s, [News Corp. Chief Executive] Rupert Murdoch is a crafty guy who seems to know a lot about American teenagers," Ritholtz said. "News Corp. gained buzz and `street cred' from MySpace." With MySpace and YouTube two of the most popular sites, it's no surprise investors are intrigued.
"If you're looking to spread a cool rumor, the sexiest cocktail chatter out there is speculation YouTube is about to go public," Ritholtz said. "YouTube just hired Yahoo's treasurer" as its chief financial officer "and you don't do that unless you're thinking about an initial public offering."
There's still investment "juice" in search engine Google Inc., Ritholtz believes, although its price is down 9 percent this year after last year's 115 percent jump. Thanks to a new iPod coming out, the buzz continues for Apple Computer Inc., up 1 percent this year after jumping 123 percent in 2005.
Other industries are generating a buzz, if not big profits.
"The genetic engineering side of the medical field has a lot of companies that are talked about but aren't making a lot of money," Lutts said. "Our favorite is Illumina Inc., which makes equipment for genetic research and testing."
Though Illumina is up 132 percent this year, he sees further potential.
Lutts likes Akamai and its 20,000 servers that provide services so the demand for popular Web sites doesn't swamp any one server. He's not alone.
"Akamai definitely has some real cachet in 2006," said Patrick O'Hare, manager of investor content for Briefing.com in Chicago. "Meanwhile, Crocs Inc., the maker of resin-based shoes that went public in March, is a volatile stock that hasn't done a lot and the question still remains whether it can build on its successful product."
The maker of Uggs shoes--Deckers Outdoor Corp.--also had buzz and has done very well. But it is often knocked as being a "one-trick pony," O'Hare said, and Crocs might encounter the same problem.
Sometimes buzz about an industry begins before an individual stock surfaces.
"The idea that pops into my head is biometric security, which involves fingerprinting and eye recognition," said Daniel Moisand, certified financial planner with Spraker, Fitzgerald, Tamayo & Moisand LLC in Melbourne, Fla. "A lot of companies are marketing products, but when it comes down to picking stocks to win that race, I don't have one yet."
Firms in that industry have their own concept of cool and how to become cooler. That's why facial-recognition software-maker Viisage Technology Inc. and fingerprint-technology company Identix Inc. recently merged to form L-1 Identity Solutions Inc.
Andrew Leckey is a Tribune Media Services columnist.
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