The social media space continues to be powered by jet fuel. The gains in the Internet space have been sizzling hot, and while there has been some overdone euphoric buying, my long-term assessment continues to be bullish, given the amazing potential for advances in the Internet space.
Facebook, Inc. (NASDAQ/FB), for instance, fell to a low of $18.80 in October 2012, prior to staging a major rally to above its initial public offering (IPO) price of $45.00. Facebook has returned over 132% over the past 52 weeks, which is well ahead of the 18% advance by the S&P 500.
If you’ve been reading my column, you’d understand my positive bias toward Internet and social media stocks. (Read “Facebook Does an About-Face: Set to Move Higher?”) With over a billion subscribers, Facebook was a story just waiting to develop.
Take a look at the chart of the Dow Jones U.S. Internet Index below. The upward trend since mid-2012 has been impressive, with the index up over 60% and continuing to show bullish signs, based on my technical analysis.
Chart courtesy of www.StockCharts.com
The next big Internet game-changing IPO on the docket waiting to debut is social media company Twitter, Inc., which just assigned its $1.5-billion IPO listing to the New York Stock Exchange (NYSE). The company’s possible debut date has not been determined yet, but it will likely be before the year’s end.
We know that Twitter, like Facebook, has tons of users, but it’s absent of profits. However, the potential with these Internet social media stocks lies in not whether they make money, but the size of their user base, and whether the company can monetize its users, eventually making money from them.
For the individual investor who has no chance of picking up shares of Twitter at its IPO price, you will have to wait until the actual debut. The only thing is that by the time Twitter begins its first trade on the NYSE, the price will likely be double that of its IPO price. I suggest you wait and see if there’s a lull in the stock price, as was the case with Facebook and its IPO.
At this point, I believe the valuations in many of these U.S. social media stocks are overdone. I would wait for a sale, rather than chase the current high prices.
Even the U.S.-listed Chinese Internet stocks have been all the rage lately, with excellent gains over the past few months. These include E-Commerce China Dangdang Inc. (NYSE/DANG), SINA Corporation (NASDAQ/SINA), Youku Tudou Inc. (NYSE/YOKU), and Baidu, Inc. (NASDAQ/BIDU).
A Chinese social media play that has not benefited as much as the other players is social media company Renren Inc. (NYSE/RENN), which may be worth a look.
The key with trading in the Internet sector is to follow the momentum, but be sure to take some profits along the way and always buy on weakness.