Select technology stocks provided compelling entry points in Q2 2014.
Facebook is highly leveraged to ongoing advertising trends and offers an attractive entry point.
Twitter offers a speculative opportunity, but questions persist around active user engagement.
I'm a self-directed investor who manages my own portfolio with the objective of achieving early retirement. I have a dividend portfolio, which is currently on track to deliver close to $28,000 in dividend income for 2014 and to maximize income return. Additionally, I have a growth portfolio, which I'm managing to maximize capital returns from established companies. Finally, I have a small venture portfolio which has the focus of extracting more speculative capital returns from early-stage companies. This update summarizes activity in my growth portfolio for Q2 2014.
Sources of Funds
I'm using selective reinvestment of my dividend income from 2013 as my primary source of funding for new investments, in addition to excess disposable income from savings. In Q2 2014, I divested selective holdings in my dividend portfolio that also provided some capital for investment.
The second quarter featured significant new activity in the portfolio as a result of certain technology growth stocks being hammered by the market. One of my aims in 2014 with my growth portfolio was to pick up quality names that happened to be trading at attractive valuations. Q2 2014 provided the opportunity to pick up a number of these names at what I felt were very reasonable prices. Some highlights in Q2 2014 for my growth portfolio were the following purchases:
Facebook (NASDAQ:FB) was a company whose value I didn't fully appreciate initially. I've come to realize over time that Facebook helps brands get granular awareness of specific users moving across multiple devices. Importantly, Facebook helps brands do this with a single media buy, and see the results more effectively than if such a buy is spread across a number of different publishers and intermediate agencies.
Facebook recently started a new business unit which facilitates mobile advertising on third party publisher applications, in a manner similar to what Google (NASDAQ:GOOG) (NASDAQ:GOOGL) AdSense does for publishers today. This new initiative will allow the management of advertising, payment routing and ad targeting on behalf of developers.
Finally, Facebook has started experimenting with a new form of video ad unit, which early indications suggest is attracting high advertiser interest. Initial estimates suggest that this new format could eventually contribute more than $1B plus in revenue to Facebook in the next 2-3 years.
All these elements are compelling drivers of business growth going forward. I started a position in Facebook at $58 for 55 shares during Q2 2014.
I added to my Baidu (NASDAQ:BIDU) stake at $156. In my opinion, Baidu had been the subject of uncertainty for its ability to make money in mobile. This has had the effect of depressing valuations. Data from Baidu's most recent quarter suggests the company is making significant headway into mobile, with roughly 30% of Baidu revenues in the quarter attributable to mobile. I'm encouraged by Baidu's progress in mobile. I continue to like the play that the company represents on China's increasing purchasing power, and the shift from offline to online advertising.
I currently hold 29 shares of BIDU and I'm comfortable maintaining this position.
I added to my Priceline (NASDAQ:PCLN) stake during the quarter. I have had a great interest in investing in companies that benefit from the power of network effect, whether it's network effects from connecting consumers and merchants (MasterCard (NYSE:MA)) or professionals with other professionals (LinkedIn (NYSE:LNKD)). My view is that Priceline is in a similar space from a travel bookings perspective. The best deals bring a broad base of consumers which in turn encourages more travel suppliers to host their inventory with Priceline.
The travel industry is a highly fragmented space, so even though Priceline has a $65B valuation, my feeling is that the company can continue moving higher, particularly given recent revenue growth has been in excess of 25% annually.
I currently hold 3 shares of Priceline which I'm looking to selectively add to.
I initiated a position in Yelp (NYSE:YELP) in Q2. I believe Yelp has a lot of promise to monetize its user base via both advertising as well as via a fee for brokering transactions. The unknown question is whether Google will let it fulfill that promise. Yelp provides a unique user community focused on providing peer review information to assist users in conducting commerce.
The problem for Yelp is it's still not a household name. It relies on Google to list its results from a user's internet search. It appears Google has been more wanting to highlight its own links to restaurants and user reviews in recent times. I believe Yelp would make a great play for another search engine player (such as Yahoo or Microsoft) and potentially even Apple or Amazon to help them execute their commerce plays.
While Yelp appears very expensive on a PE basis, my view is that it has significant potential beyond its current $5B market cap.
I initiated a position in Yelp of 57 shares at $55.30
The most speculative position that I initiated in the last quarter for my growth portfolio was my investment in Twitter (NYSE:TWTR). I say speculative, because the company has a compelling platform, but appears to be struggling as far as rapidly adding more users and encouraging significant user activity.
Nevertheless, I'm still intrigued by the potential that a such a short form internet messaging service could have as a medium to facilitate real time communications to a broad user community. I'm not so concerned that monetization doesn't appear to be happening as rapidly as the market expects because strong user growth and engagement will eventually pave the way for a variety of monetization models.
I initiated a position in Twitter of 90 shares at $32.72.
Growth stocks have significantly recovered from the downward spiral they were in toward the early part of Q2 2014. As such, I'm happy to hold what I have for the moment and I'm thankful I had the chance to pick up some compelling growth names for what I consider to be fairly reasonable prices. I will be selectively looking to add some capital to some of the positions I have initiated if a broader pullback emerges. I don't intend to add additional capital to any of the names in my growth portfolio at current prices, however.
Disclosure: The author is long FB, TWTR, YELP, PCLN, BIDU. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.