You never want to invest your money into something just because it is “cool”, but there is no denying that “cool stocks” are attractive because they tend to garner a lot of media attention, and analyst attention.
The advantage of this is that they are easier to keep up with. With more boring stocks, analysts reports are issued less often, and there are fewer headlines to keep you informed with what is happening with the company. Consider a company like Apple (AAPL). There will never be a shortage of news headlines on the company, and Wall Street will be quick to digest any news on the company and reflect that news in their price targets and stock recommendations.
Another advantage of owning cool stocks is that they are typically companies that we hear a lot about in our day to day lives. For example, social media giant Facebook (FB) is everywhere. It is hard to get through the day without hearing or seeing something about Facebook. This constant reminder of the company itself serves as a reminder to its investors to stay on top of their position, something that it easy to forget when you own shares in a company such as Republic Services (RSG) that is in the “not-so-cool” garbage and recycling industry.
A final advantage of “cool stocks” is that often times the market will allow these stocks to trade up to unusually high multiples. The idea is that the stocks have a lot of future potential, so analysts and traders are willing to stand behind the stocks even as their valuations rise higher than their peers. This allows for greater upside potential, and creates longer windows of opportunities for investors.
Let’s look at five stocks that currently have the all-important “cool factor”.