I can’t say I was miserable not making new picks for the past 2 weeks. It’s not that I don’t enjoy the process, I really do. But after making a few bad trades which now have me down a bit for the year, it was time to take a break and get a bit of distance from those picks. Hopefully I achieved that. Most of my stock picks so far this year have been going well including the Stock Picking competition, the 2012 Tech Stock Power rankings, the Ultimate Sustainable Dividend Portfolio and others. But tech stocks have not been doing anywhere close to what I would expect or what has been achieved in the past few years. Hopefully I can turn that around now!
Today, I am actually making a pick that momentum traders would stay away from, buying a stock that has been doing very badly and shorting one that’s been rising. I did discuss Zynga in last Thursday’s tech stock newsletter (join now, it’s free!). Let’s start off by looking at the number for Zynga and Demand Media:
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Long Zynga (ZNGA)
Zynga is getting crushed, especially since the now very public Facebook IPO fiasco. At some point, it should become cheap and if you do not believe that Zynga is another one of those falling knives, then I think now might be a good time to get involved. It is trading at a very reasonable P/E when you consider how fast the company is growing. There are still many questions regarding its profitability but I personally think there is very limited downside and a lot of potential for growth.
Short Demand Media (DMD)
Demand Media has been one of 2 or 3 big misses so far in my 2012 Tech Stock Power rankings as it has been able to decent solid growth in revenues and profits and its guidance remains very strong. It remains to be seen if the company can keep it up and I guess you could say I’m not a big believer. The company continues to depend on a very soft advertising market and I don’t see it keeping up these numbers in the short to medium term.
Disclosure: No positions on Zynga (ZNGA) or Demand Media (DMD), this trade will be opened on Monday morning