6 Cult Stocks to Buy or Sell
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6 Cult Stocks to Buy or Sell

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By Lawrence Carrel
March 17, 2011

Epic status is typically reserved for sports heroes and Oscar winners, but lately some stocks have acquired the mantle. These companies created a unique product or concept, and developed their brands into icons. Because of this, they have a cult-like devotion among followers, er, shareholders.
No wonder, then, that such companies’ shares soar. But, eventually, it gets tough to continue reaching ambitious targets for sales and earnings growth. So we studied six to see if the business remains on the cutting edge and if their devotees still drink the Kool-Aid. Find out which two we think are still worth buying. (All prices and stock-related data are as of the March 16 close.)
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6 Cult Stocks to Buy or Sell | Slide 2 of 7

Apple (AAPL)

Courtesy Apple

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Price (as of market close on March 16): $330.01
2011 earnings estimate: $22.99 (for the fiscal year ending in September 2012)
Recent bear market low: $78.20 on January 20, 2009
Recent bull market high: $363.13 on February 16, 2011
It’s no shock that the king of the cult stocks is Apple. Whenever Apple launches a new product -- think iPod, iPhone, iPad and iTunes -- it changes the consumer electronics industry and a lot of others, including Wall Street. While its product lines have seen phenomenal growth, Apple only owns a small share of its growing markets. The iPhone holds 16% of the global smart-phone market, and the Mac claims less than 5% of the world’s personal-computer volume.

Kiplinger Recommends: BUY
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6 Cult Stocks to Buy or Sell | Slide 3 of 7

Netflix (NFLX)

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Price (as of market close on March 16): $213.84
2011 Earnings estimate: $4.39
Recent bear market low: $17.94 on October 27, 2008
Recent bull market high: $247.55 on February 14, 2011
Destroying the video-store industry, Netflix doesn’t only mail rented DVDs; it has streaming video technology, so it’s a major source of digital direct-to-your-screen entertainment. But one of Netflix’s biggest issues is ease of entry into its primary business. Cable companies are taking aim, and Amazon just introduced streaming-video service. Netflix has been in a sweet spot between what’s left of the rental stores and the onslaught of digital streaming. Unless it finds a new big thing, it may end up trapped in the middle.

Kiplinger Recommends: SELL
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6 Cult Stocks to Buy or Sell | Slide 4 of 7

Amazon (AMZN)

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Price (as of market close on March 16): $164.70
2011 earnings estimate: $3.18
Recent bear market low: $35.03 on November 20, 2008
Recent bull market high: $191.25 on January 18, 2011
Amazon has ardent fans because it is the world’s largest Internet retailer, but that doesn’t mean shareholders will continue to get stellar performance out of the stock. For one thing, as Amazon vies with Netflix and others in the streaming-video business, it will pay much more to acquire content. It is also spending heavily on technology infrastructure and distribution centers. In addition, Amazon is likely to cut prices to keep inventories from overflowing and because of wider competition in e-books. We think this story could have an ugly ending.

Kiplinger Recommends: SELL
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6 Cult Stocks to Buy or Sell | Slide 5 of 7

Priceline (PCLN)

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Price (as of market close on March 16): $455.96
2011 earnings estimate: $18.90
Recent bear market low: $47.07 on November 6, 2008
Recent bull market high: $469.13 on March 4, 2011
If Priceline keeps up its pace, it will go, as spokesman William Shatner might say, where no stock has gone before. But the name-your-own-price travel booking site is facing headwinds. Airlines are flying less and charging more. High oil prices also affect car trips, hurting hotel bookings. Turmoil in Africa, the Mediterranean and the Middle East could curtail international travel, one of the company’s biggest growth areas. More troubling, the faithful have started to worry Priceline is coming in for a crash landing. Insiders are exercising options and selling shares.

Kiplinger Recommends: SELL
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6 Cult Stocks to Buy or Sell | Slide 6 of 7

Chipotle Mexican Grill (CMG)

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Price (as of market close on March 16): $258.66
2011 earnings estimate: $6.74
Recent bear market low: $38.69 on November 20, 2008
Recent bull market high: $272.95 on February 14, 2011
By serving better and cheaper meals than the usual chain restaurant, Chipotle has sold investors on its recipe. But now the entire restaurant industry is seeing rising food and packaging costs bite profits. Freezes in Mexico and Florida could add two percentage points to Chipotle’s food costs, but Chipotle knows a price hike could alienate customers. True believers offer mixed signals, but the pros sense Chipotle is no longer the flavor of the month.

Kiplinger Recommends: SELL
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6 Cult Stocks to Buy or Sell | Slide 7 of 7

Polo Ralph Lauren (RL)

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Price (as of market close on March 16): $121.19
2011 earnings estimate: $5.78
Recent bear market low: $31.67 on March 9, 2009
Recent bull market high: $127.98 on February 18, 2011
The cult of Polo Ralph Lauren has moved from the shirts to the shares. While high cotton prices hurt competitors, Ralph Lauren doesn’t care as much about these costs because it sells luxury-priced garments and accessories to wealthy men and women the world over. And it is in the right spot to capitalize on a series of favorable trends, both here and in other countries. In February, the company doubled its dividend rate. A business has to feel secure about its profit stream to do that.

Kiplinger Recommends: BUY
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