Technology Stocks 2012 Power Rankings

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Date posted: 01.18.2012 (5:00 am) | Write a Comment  (5 Comments)

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When I had the idea for this post, I thought it would be incredibly interesting to try to rank all of the stocks that I follow from the best to the worst. It turned out to be much more difficult than I had anticipated. Why? So many reasons, but basically, how would you judge these stocks? On their home run potential? On their bust likelihood? Over what time horizon? I ended up spending a lot of time trying to determine what the criteria would be and then even more trying to judge these stocks from best to worst.

Let me start off by saying, I will be making mistakes here, obviously. The goal is not for all of my top picks to do well or all of my bad picks to do poorly. Rather, I hope that my top 10 picks can end up doing better than the bottom 10. Does that make sense? Hopefully by a fair margin but I’m not even asking for that much to be happy.

How I Rank Them?

Two main things I looked at are:

-How undervalued/overvalued are these stocks in my opinion?
-How confident am I in that prediction?

Sub questions turned out to be:

-How wrong could I be? For example, I think the downside for Yahoo (YHOO) is fairly small given the value of its assets so that would be a good thing. A company such as Groupon has a lot more questions and thus more downside.

Some Companies Were Excluded

No surprise, despite being a big believer in Chinese stocks (SNDA, SOHU, NTES, CTRP, YOKU), I excluded most of those that I follow because these days I still don’t feel like I have a good grasp on them and would hesitate to voice strong opinions. You would also notice that I did not include those stocks in my 4 stock picks or even in recent long & short stock picks. I excluded Yandex (YNDX) and MakeMyTrip (MMYT) for the same reason and Orbitz Worldwide (OWW) because the stocks trades under $5.

I also had to exclude stocks that have yet to turn public such as Facebook:)

I don’t expect a single person to agree with the entire list, the chances of that happening would be nearly 0. I would still love to get your comments.

Without further wait:

1st ever IntelligentSpeculator Technology Stock Power Rankings

Rank
Stock/Company
Stock/Company Comments
1 Apple (AAPL) I’ve written about this, I think that Apple has
tremendous upside
, very limited downside and is priced at a great valuation, there’s very little to make me hesitate.
2 Baidu (BIDU) Being the dominant player in the exploding Chinese market with very little competition? Priceless.. My biggest issue is the lack of information regarding Baidu.
3 Google (GOOG) Google is gaining traction with Google+, has tons of new
initiatives and a dominant mobile platform, and did I mention their search dominance?
4 TripAdvisor (TRIP)

TRIP was spun off by EXPE
late last year and we heard little about it, but it’s an incredible business, perhaps the best play on social currently available.
5 Zynga (ZNGA)
There is clearly some uncertainty involved in buying Zynga (ZNGA) and some downside but I think that it has a great position and its valuation is very attractive. The cost structure is less favorable than TRIP’s but it has tremendous upsize.
6 Amazon (AMZN)

I love Amazon’s direction
, its recent acquisitions, how it is becoming a leader in cloud computing.. the stock is very expensive though which is why the upside is more limited.
7 Priceline (PCLN) I traded Priceline very often in the past few years, the
company’s growth has slowed down but it’s a great brand and remains a good value in my opinion.
8 OpenTable Inc (OPEN) Risky.. This is clearly the most risky pick in my top 10. Why? The company continues to have momentum and I think it could go much higher but it is facing increasing
competition from Google among others. Tough one but I’m generally bullish.
9 Travelzoo (TZOO) Travelzoo is a company that seems like a great
play on the Groupon business
. Why? Attractive valuation, less questions about its numbers and certainly less risk with a lot of upside.
10 Dice Holdings (DHX) I’ve often gone  long on DHX against MWW simply because the valuations were off and unfortunately, that seems to have been corrected to some degree. I
still do think it’s a great play, the company has quality products and is very focused.
11 Yahoo (YHOO) A company that I’ve shorted so often, criticized over
and over and now is nearly a top 10 company? Shocking. I did hint in a  recent tech newsletter that I’m becoming more optimistic because of the limited downside of Yahoo (given its foreign assets) and the leadership change can only be good.
12 Netflix (NFLX) Wow, Netflix has been a great example of a falling knife, I think it certainly has great potential for a rebound, though it still has an uphill battle following the PR disaster that occurred last year.
13 LinkedIn Corp (LNKD) I saw and still see so much potential in LNKD. This company is rock solid, continues to grow and will be able to make significant money when it decides to turn the “switch” to on. I would LOVE to buy LNKD but for now, as I complain too often, the stock is priced too expensive.
14 Groupon Inc (GRPN) In most regards, Groupon’s IPO has been a disaster. The company had issues with its numbers, had to restate some of them, and there are still many concerns about its profitability. I am staying far away for now but that could cost me. The company is growing very quickly and could turn out to be a huge thing. It just seems very risky to me and I can’t add it to my top 10. The upside potential is significant enough though.
15 WebMD Health (WBMD) WebMD is a company that I’ve been looking at for some
time, they do have a great property and I like the fact that the company is not trying to be broader than it needs to be. That being said, the company is suffering from the lack of advertising from drug companies and after saying it would not be selling itself after all earlier this month, the stock dropped nearly 30%
16 Microsoft Corp (MSFT) Boring? You might say that. Despite some new exciting
segments in its gaming, and online divisions, the company continues to be defined by its decade old Windows and Office products. Steady growth and good value of overall but this stock will likely not move much. Great for safer dividend investing but not the home run that others are looking for.
17 Quin Street Inc (QNST) Quinstreet is a fairly small, unknown company but it
has been building some solid assets and its advertising business
, I do think there is better upside than most seem to think here. That being said, competing with Google, Facebook and others for advertising dollars
is a tough business.
18 ValueClick Inc (VCLK) Valueclick is a company that I’ve enjoyed shorting but
lately has been coming up with stronger growth. I’m far from sold but am backing off on selling this one for now. That being said, there continues to be little to be excited about here.
19 Demand Media (DMD)
Demand Media has lived through the storm after its IPO
and does seem to be working on improving its web properties but I do still have major doubts about its structure, how it can compete with more “focused”
web companies.
20 eBay Inc (EBAY) eBay, the company formerly known for its auction
business is now moving fast to mobile and continues to do extremely well with Paypal which continues to face very little competition. I do expect growth to accelerate at some point and do like the business but it just seems like the Paypal growth is barely offsetting the decline from its”eBay” business.
21 Rackspace Hosting Inc
(RAX)
No doubt, RackSpace continues to evolve in a very competitive, low margin business but it has been doing so very well so far. I
22 IAC InteractiveCorp
(IACI)
I’ve never been very positive about IAC Interactive but
recently I’ve read more research that suggests the company’s best times are in the past. There are few attractive properties at IAC and while it does get some revenues from its search and dating services, I
doubt those can generate much growth in the medium term.
23 Expedia Inc (EXPE) I did like Expedia’s business quite a bit but the recent spin-off of TripAdvisor means that its best asset (in my opinion) is now off the books. It’s unclear to me what the financial picture will look like going forward so I’m staying away.
24 Adobe Systems Inc
(ADBE)
I’m not a very big trader of ADBE (have only traded it once) but I do think that in general, the company
has failed to deliver big new products, in a similar way as Microsoft (MSFT) but with weaker “core” products and not as much in the works (you can argue about the insignificance of the Xbox or others but at least MSFT has those in the works).
25 AOL Inc (AOL) For some time there, I almost became an AOL believer
after big moves like  buying TechCrunch and the 
Huffington Post
. But recent exec defections are a clear sign that things are not going well at AOL
26 Zillow Inc (Z) Zillow is another one of those companies that will do well one day but I think that day is down the road. The real estate market is crumbling and unlikely to recover anytime soon making it even more challenging for Zillow to turn profitable. For someone that takes a lot of input based on P/E ratios, that makes Zillow difficult to trust.
27 Monster Worldwide
(MWW)
Monster could be a great company, it has a great brand
in a decent product, but it’s going after every industry in every country which is not working so well. The valuation has improved but I still have my doubts about MWW’s ability to deliver much growth.
28 Research In Motion Ltd
(RIMM)
The company is going to be losing money soon,  has little hope left of turning things around, the biggest danger in shorting is that the company should end up being acquired.
Horrible products.
29 Pandora Media Inc (P) Pandora is one of those companies that will  face an uphill battle for a very long time. Pandora faces very high competition from big players such as Amazon, Apple and Google but also smaller players like Spotify. That will make for tiny margins and I just don’t see how a company that doesn’t expect to turn a profit for the next 2 years can be worth buying. I was afraid to go short but I’m becoming less so…
30 XO Group Inc (XOXO) The company formerly known as the Knot remains a great
short despite its new name. There is little to no growth and nothing that warrants its current valuation.
31 Rosetta Stone Inc (RST) Ahh Rosetta Stone, wonderful company, wonderful products
(I’m a fan!) but the company does not have the great business model. It depends heavily on advertising which makes its margins smaller than they should be. I’m not very optimistic about this stock making big moves.
32 Blue Nile Inc (NILE) What can I say,  I go short NILE about as often as I can, it usually works. Those holding this stock need to tell me how in the world the valuation makes sense. This stock is going nowhere…

So, what do you think? Agree with my rankings? Be sure to also check the Dividend Stock Power Rankings at TheDividendGuyBlog!

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5 Comments

  1. Pingback by Dividend Stock Power Ranking — January 18, 2012 @ 7:35 am
    avatar

    […] it’s a great idea? Don’t tell me, tell my friend Intelligent Speculator who did a Techno Stocks Power Ranking . Would you have ranked those stocks in this order? What’s your take on my #1 […]

  2. Comment by Zavi — January 18, 2012 @ 7:50 am
    avatar

    Woow amazing post!! I really like the idea to rank them like this. No surprise Apple is on your top position hahaha but I would switch Baidu third and Google second. I believe Google have better munitions and strenghs internationally. i pretty like your top 5 though.

  3. Comment by Intelligent Speculator — January 18, 2012 @ 9:32 pm
    avatar

    @Zavi – Haha, I wouldn’t be too opposed to that ranking change, thanks for the suggestion and comment:)

  4. avatar

    […] made the top 10 in my 2012 Tech Stock Power Rankings in good part because the company continues to be very targeted towards its goal of high growth. […]

  5. avatar

    […] that I follow (except for a few exceptions such as most Chinese stocks) from 1 to 32 in my first Tech Stock Power Rankings. As I explained recently in the Tech Stock Newsletter, it was interesting because I could choose […]

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