This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Investors, Beware Fad Stocks

NEW YORK ( TheStreet) -- As a deep value investor, I am guilty of many things, including the tendency to become interested in companies that may be well past their prime. But if it's worth $1.00, and I can get it for 50 cents, it does not matter how ugly the company appears.

I am also guilty of shunning the highfliers that come to market, the purveyors of the most interesting products and services. There is often way too much hype surrounding these stocks, which tends to push their valuations into the stratosphere, at least for a while. Even though these companies may have long-term staying power, there is often a disconnect between what investors are willing to pay and the stocks' actual value.

Then there's a host of companies that I won't touch because in my view, their products -- even when they're exciting and innovative -- are fads. Consumer tastes change, and what is hot now may not stay that way for long. When the fad fades, these companies' stock prices fizzle.

I know many people who own Keurig coffee machines and rave about K cups, made famous by Green Mountain Coffee Roasters (GMCR).

It may be a convenient way to brew a cup of coffee, but it's expensive, and I think it's a novelty that will ultimately wear thin. But I'm cheap, and would rather brew a whole pot of coffee for 50 cents then spend the same amount for a K cup.

Now, I may be wrong, and folks may still be using their K cups 20 years from now, but there was little to justify Green Mountain shares running up to $111. Expectations were too high, and some investors got burned with the hope of boundless growth. There was simply too much hype, (and some interesting accounting practices). The stock appears to be a lot cheaper now, but I'm still not convinced the product will continue to resonate with consumers. GMCR Chart GMCR data by YCharts

I view SodaStream (SODA) as being a similar company, even though it reported better-than-expected second-quarter results Wednesday morning.

I've seen the product. It is indeed very interesting and innovative. I like that many of the company's syrups use sugar instead of corn syrup. I've tasted soda made with the machine, and it is excellent.

I'm just not sure I see the staying power. At the equivalent of 25 cents per can, it's no cheaper than buying a 12-pack on sale. I can't see consumers using these machines for very long. The novelty will wear off, and SodaStreams will end up as dust collectors on the kitchen counter next to the Keurig, or, on top of the fondue pot in the dining room closet. I may be wrong; it certainly would not be the first time. SODA Chart SODA data by YCharts

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,035.25 -35.97 -0.21%
S&P 500 1,974.50 -3.30 -0.17%
NASDAQ 4,496.9660 -8.8860 -0.20%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs