3 Scary Cult Stocks You Should Flee

Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Cult Stock – A classification describing stocks that have a sizable investor following, despite the fact that the underlying company has somewhat insignificant fundamentals. Typically, investors are initially attracted to the company's potential and accumulate positions in speculation that its potential will be fulfilled, providing the investors with a substantial payout. (From Investopedia)

With Halloween having just past, it’s always a fun reminder of how we treat some of our greatest fears by facing them directly.  We’ll go to that haunted house or dress up like a zombie in an effort to put away the thought that there’s any truth to their existence.  The trick is that we do so in a manner that still makes us feel safe. 

I think as investors one of our greatest fears is to be wrong about an investment and lose money.  There are just some stocks out there that have such a following because no one want’s to be wrong.  They develop this cult following as we fall for the value trap that they’ve become.  Here are three of the worst offenders that I think investors should flee before it’s too late.

Advanced Micro Devices (NYSE: AMD)

I can’t tell you how many times I’ve been criticized by readers when I’ve made mention that I think Intel (NASDAQ: INTC) is a better company to own than AMD.  The allure that AMD will somehow become the next Intel has held investors' fancy for years.  With a market cap of just $1.5 billion you can see why some would dream of the stock market riches if AMD reaches the $110.5 billion heights of Intel.

In their more than 30 years as a public company, AMD has returned a whopping 180%, while in the same timeframe Intel has just returned a hundred fold more at 18,000%.  Intel owns the microprocessor market with a near 80% market share.  They own their manufacturing facilities, which allows them to control the process and produce superior chips.  They are able to plow billions back into R&D while AMD is seeing their revenue steadily decline.  Run while you still can!

Research in Motion (NASDAQ: BBRY)

While AMD’s never really been a top dog, RIMM once ruled the smartphone world.  Over time their advantages began to erode as system outages for their BlackBerry devices combined with losing the coolness factor to Apple (NASDAQ: AAPL).  Now they’ve lost their grip on their core corporate customer base and more competition keeps moving in. 

Shares have been rebounding a bit of late as news emerges that their BlackBerry 10 is now being tested following lengthy delays.  Still, shares are down more than 90% over the past five years as they’ve fallen behind Apple’s iPhone.  The real question is will the world stop to watch a BB10 release event as they did for the iPhone 5?  I think not, and investors would be wise to just make their way to the exit.

Sirius XM Radio (NASDAQ: SIRI)

Ah, the allure of satellite radio and the more than 20 million subscribers has had investors salivating over this company for years.  The problem is that in their near two decades as a public company shares are down almost 40%.  It is easy to see what has investors excited; recurring revenue from millions of subscribers is what took a company like Netflix to new heights. 

Sirius has just never lived up to the enormous promise, and their merging with chief rival XM Radio has yet to deliver market stomping returns.  Sure, the company has been on a tear of late, and their latest earnings report gave investors reason to hope.  Still, the company is not cheap, just barely profitable, and they’re going to be leaderless come next year. 

Further, I don’t think investors should overlook Apple.  Not only are there rumors that they’ll be rolling out a streaming service, but with a simple adaptor you can bypass the radio and create your own station.  I’ve been using my iPhone to play my iTunes playlists through my car radio for years now.  There are just too many reasons not to be tuned into Sirius, and I think investors should tune out as well.

Bottom Line

Odds are you’ll think I’m wrong about at least one of these three.  That’s ok -- sound off in the comment box and let me know why I’m wrong.  By digging deeper we can all learn to invest better.


latimerburned owns shares of Apple and has the following options: Apple and Intel. The Motley Fool owns shares of Apple and Intel. Motley Fool newsletter services recommend Apple and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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