Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Internet

The Internet refers to the World Wide Web, which is the familiar “www” prefix found in all web site URLs. The Internet is one of the top innovations over the last few decades, and it has become a critical platform for both businesses and people. The significance of the Internet in the global marketplace is only expected to grow going forward.

This New Tech-Related Sector Is Hot

By for Profit Confidential

Profit from Social Media Without Investing in Social Media StocksAs I have recently discussed in this column, I am positive on the technology sector, yet there is also some obvious froth in these stocks, namely in the social media space.

My freshman son in high school is currently producing a sports blog that I admit is pretty good. In less than a week since going live, his blog has more than 40 unique visitors and well over 200 page hits. He is asking how he can make money from blogging. I say it’s all about the eyeballs and traffic to your site and how active the users are.

If you simply look at the social media space, you’d realize the massive money being thrown around in driving the valuation of companies in this space. Facebook, Inc. (NASDAQ/FB) comes to mind, which I recently named as one of my top plays in the Internet sector. When you have more than a billion subscribers, the upside is enormous if the company can monetize its traffic.

In the case of my son, he has a long way to go, but for companies like Facebook or Twitter, Inc. (NYSE/TWTR), they have the eyeballs, so now it’s all about converting them to money. (Read “Two More Internet Stocks to Watch.”)

If you doubt the euphoria in the social media sector, think about Facebook deciding to put down a whopping $19.0 billion to acquire mobile messaging company WhatsApp. The four-year-old company is growing exponentially, with more than 450 million users taking advantage of its cross-platform mobile messaging service each month. The deal makes sense for Facebook, as it adds an additional mobile service … Read More

Where to Find the Best Buying Opportunity in This Stock Market Going Forward

By for Profit Confidential

Buying Opportunity for Stock Investors Going ForwardAt the beginning of the year, I thought the technology sector would deliver some of the top potential for gains this year.

Nearly two months into the year, the technology sector has, so far, made the biggest strides in what has been a relatively cautious start to the year.

So far this February, the technology sector is leading the broader stock market with the NASDAQ closing higher for eight straight sessions as of the end of Tuesday. With the steady advance, the NASDAQ hit a new 13-year high, up 4.12% in February and 2.28% in 2014. The NASDAQ is the only major stock market index in the black this year.

And it looks like the NASDAQ could test its all-time nominal high of above 5,100 sometime in 2015 if everything pans out. We could even see a test later this year if the technology sector can maintain its positive sentiment and continue to edge higher, based on my technical analysis.

It has been nearly 14 years since that infamous period back then when the technology sector imploded.

The valuation and froth this time isn’t as bad, but we have been seeing some euphoric trading in the Internet services space and social media stocks. (Read my take on Facebook in the social media space in “My Top Stock Pick in the Internet Space.”)

A look at the long-term chart of the NASDAQ reveals that the relative steadiness of the current move towards 4,000 is not unlike what happened more than 13 years ago. Note that the index is now near its previous nominal high as indicated by the top … Read More

If You Can Take the Risk: My Top Three Chinese Stocks

By for Profit Confidential

Could These High-Risk Stocks Pay OffWe all know about some of the insane valuations with social media and Internet services stocks, such as Twitter, Inc. (NYSE/TWTR), Facebook, Inc. (NASDAQ/FB), and Yelp, Inc. (NYSE/YELP), as I have discussed in these pages before. (Read “Two More Internet Stocks to Watch.”)

These valuations make it extremely risky to buy, as a change in the market perception and valuation could lead to a sell-off in the stock, as was the case for Twitter recently.

Now, if you are willing to assume the risk, there are some more attractive Chinese Internet and social media stocks that offer far better valuations than their American counterparts, but these China-based companies also come with much higher risk.

A look at the valuations of these Chinese stocks really doesn’t tell us much, but based purely on strict metrics and valuations, these Chinese stocks look pretty good—in fact, the prices of these Chinese stocks seem too good to believe. And therein lies the risk: due to the questionable reliability of the financial reporting, auditing, and statements in China, these Chinese stocks carry a lot of risk. Sometimes, it seems as though numbers have been made up to suck in investors and drive the share price higher.

The U.S. Securities and Exchange Commission (SEC), as I said in a previous commentary on China, has been trying to clean up the reporting requirements and offer some potential hope that the numbers being reported are valid. While it’s a good step forward, there’s still no guarantee that crooks will not escape the watch of the SEC.

I was reading how there may be 30 or so … Read More

How Last Week’s $28.3B Withdrawal from Equity Funds Could Benefit Investors

By for Profit Confidential

Billion Withdrawal from Equities Could Benefit Your PortfolioThe stock market may have staged a decent rally last Thursday, but it’s not enough to convince me that the worst is over. In reality, I think there are more downside moves and opportunities to buy on the stock market ahead.

The Dow, S&P 500, and NASDAQ are down by about four to five percent, so it’s really not a stock market correction at all—but simply an adjustment. A correction is generally seen to be a loss of 10% or more.

Even so, investors are scrambling to exit positions. Based on research by Citi Research, there was a record $28.3-billion weekly withdrawal from U.S. equity funds for the week ended February 5. (Source: Eisen, B., “Equity funds have record week of withdrawals: Citi,” MarketWatch, February 7, 2014.) Of that $28.3 billion, about $14.8 billion was funneled into bond funds. The research also indicated $6.4 billion was taken out of emerging markets funds in the stock market.

Then there’s Dr. Marc Faber, also known as “Dr. Doom” on Wall Street, who feels there’s more selling to come. He also singles out the technology sector as being bubble-like, especially with the overvaluation of the social media space. (Source: Lewitinn, L., “Dr. Doom: Tech stocks even more overvalued now than in 2000,” Yahoo! Finance, February 7, 2014.) (For my analysis on the social media space, read “Two More Internet Stocks to Watch.”)

To some degree, I do agree with Dr. Doom, but I don’t believe there’s a bubble in the technology stock market like there was during the meltdown in 2000. My feeling is that just some areas of the … Read More

Two More Internet Stocks to Watch

By for Profit Confidential

Two Strategies for Playing These Overvalued Social Media Internet StocksAs momentum play Twitter, Inc. (NASDAQ/TWTR) plummeted 24% to $50.00 last Thursday morning, my response was—it’s about time.

Here’s what I’m thinking: the superlative price spikes in social media Internet stocks in 2013 were truly obscene; in fact, I think the extreme buying was overdone.

The sell-off in Twitter last week actually gave me some confidence, thinking the stock market was finally getting back to some level of normalcy.

In the case of Twitter, the company managed to beat on its revenue estimate but provided soft user growth, which we all know is the backbone of social media Internet stocks. That’s why an Internet company like Facebook, Inc. (NASDAQ/FB), with its more than one billion subscribers, has so much potential. (Read “My Top Stock Pick in the Internet Space.”)

Twitter, even with the 23% haircut, is still so overvalued, trading at a whopping 440X its 2015 earnings per share (EPS) and a massive price/earnings-to-growth (PEG) ratio of 296! These are simply metrics that are obscenely out of line, even for the Internet space.

The irony was that it wasn’t until Twitter released its results that Wall Street then decided to downgrade the stock. Twitter was downgraded to a “Sell” by UBS. (Great hindsight analysis… Why not simply downgrade prior due to the extreme valuation?)

At the current $50.00 level, I would wait to even consider buying this stock, as the valuation is still out of line with the company’s fundamentals and outlook. A price at which I would seriously look at Twitter is below $30.00—if it ever reaches that point.

Twitter ChartChart courtesy of www.StockCharts.com

Now, while I do … Read More

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