New Stock Pick Long LinkedIn (LNKD) & Short Pandora (P)

By: ispeculatornew
Date posted: 03.19.2012 (5:00 am) | Write a Comment  (0 Comments)

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It continues to be a very interesting trading year so far and last week was a first “slow” week in some time with most of my trades barely moving at all. I’m not complaining at all and in fact am thrilled to open a 5th trade today! This one comes as no surprise for the IntelligentSpeculator Tech Mailing List members (free to join if you are interested!) as I had discussed this one last weekend.

Today should be a very interesting trade and I’m actually thinking about changing my rules for this one. I see this one as a long term trade and might keep it going a bit longer, I will certainly keep you posted but I think this is the perfect (and maybe only for now) way to play LinkedIn, which I think is destined to great things.  Let’s look at the numbers for these 2 stocks:

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I’d like to invite you to see this chart of quarterly revenues for both companies. If I told you that the fastest growing company (LNKD) was also profitable (while P isn’t), that it faces little competition, is expected to increase profits significantly this year (while P will lose money this year and even next)… would you believe me if I told you that LNKD was trading at a lower forward P/E????? Crazy, I know.

Long LinkedIn (LNKD)

I have been a strong believer in LinkedIn for some time but have also been complaining about its high price. Unfortunately, that has not changed this year as the company continues to trade at sky high P/E ratios but I do think that as a profitable company and one growing as fast as Pandora with little competition, the valuation is much easier to justify. In face, I think LinkedIn has barely scratched the surface in terms of what it will be able to offer besides advertising.

I am not a momentum trader but still look at Trend Analysis numbers and the numbers certainly look very promising on this trade.

Short Pandora (P)

Ahh it`s not a big surprise to see me short Pandora is it? The music company was near the very bottom of my 2012 Tech Stock Power rankings this year at #29. It has been losing money for years, will be losing some again this year and is actually expected to lose over $0.15 per share in 2013. Seriously!? Sure, revenues have been increasing but not nearly quickly enough. There are so many things that make me run away from buying Pandora. The first of course is that making money in the music business has been a very bad bet for years now. Pandora faces competition from so many players such as Apple, Amazon, Google, but also many other smaller players. I can’t imagine Pandora gaining much power to negotiate lower costs with the music labels and with competitors willing to lose money in this business, it’s going to be an uphill battle.

Disclosure: No positions on LinkedIn (LNKD) or Pandora (P), this trade will be opened on Monday morning

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