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The Internet continues to be a promising sector to invest in for the future. I have been researching a handful of stocks that are Internet plays either directly or indirectly to see where the best values are now. These stocks look cheap from just about every metric. Each is tied one way or another - directly or indirectly - to the Internet sector. Each has a reasonable PE ratio and offers future growth potential. Here are the companies:
Perfect World Co., Ltd. (NASDAQ:PWRD) is trading at $23.71. PWRD is one of the leading online gaming companies in China. These shares have fallen from a 52 week high of $42.18. The 50 day moving average is $21.95 and the 200 day moving average is $24.48. PWRD earnings estimates are about $2.49 per share in 2011. This puts the PE ratio at about 8, which is very low for one of the leading online gaming companies. The balance sheet is extremely strong with almost $5 per share in cash.
What makes PWRD a potential bargain: Just about everything, from the low PE ratio, extremely strong balance sheet, and the future growth potential from the large population in China. The substantial amount of cash on the balance sheet will allow it to invest in future high growth opportunities.
Net Servicos de Comunicacao (NASDAQ:NETC) shares are trading at $8.86. These shares have a relative strength index of 36, which indicates the shares are oversold. NETC provides cable television and Internet services in Brazil. This stock has dropped hard in the past several weeks, from about $13, to current levels. The 50 day moving average is $9.84 and the 200 day moving average is $12.01. The 52 week range is $8.37 to $14.20. Book value is stated at $6.69.
What makes NETC a potential bargain: These shares dropped after earnings were released. The earnings were only a slight miss. I think the market has overreacted to the fact that profits were 2 cents less than in the comparable period last year. NETC reported fourth quarter net income at $78.3 million or 23 cents per share compared with net income of $81.2 million or 25 cents per share in the year-ago quarter. This is a cheap way to play the growth in Brazil.
InterActiveCorp (NASDAQ:IACI) is trading around $30.42. InterActiveCorp operates a number of well known Internet sites and is based in New York. The 50 day moving average is $29.96 and the 200 day moving average is $26.87. IACI is estimated to earn about $1.57 per share in 2011.
What makes InterActive a potential bargain: IACI might be an interesting target for a major Internet, technology or retail company seeking to acquire IACI for the further development of the many websites it owns. For example, "Urban Spoon" is owned by IACI and is competing with the highly valued Open Table (NASDAQ:OPEN), which has a market cap similar to that of IACI. Based on the valuation of OPEN alone, IACI looks downright cheap. IACI could probably unlock a significant amount of value if it were to spin off some of the businesses as separate units. Management is heavily invested in this company, and I expect they will find ways to add shareholder value.
Yahoo, Inc. (NASDAQ:YHOO) is trading around $16.54. Yahoo operates a number of well known Internet sites and is based in California. The 50 day moving average is $16.75 and the 200 day moving average is $15.65. YHOO is estimated to earn about 76 cents per share in 2011, 92 cents in 2012.
What makes Yahoo a potential bargain: YHOO has an extremely well known brand and many ways to leverage existing assets. It also has substantial value in assets it owns in Asia. Yahoo owns stakes in Alibaba in China and Yahoo! Japan, which it may be able to cash in on in the future. Yahoo! Japan has an estimated value of about $8 billion. As that article says, "Yahoo remains a stellar brand with consumers worldwide and an Internet property with huge traffic and a big ad business."
Giant Interactive (NYSE:GA) is trading at $7.71. Giant Interactive is one of the leading online gaming companies in China. These shares have a 52 week trading range of $6.03 and $8.25. The 50 day moving average is $7.37 and the 200 day moving average is $6.79. GA earnings estimates are about 61 cents per share in 2011, 69 cents for 2012. This puts the PE ratio at about 11, which is low for one of the leading online gaming companies. The balance sheet is extremely strong with about $4.29 per share in cash.
What makes Giant a potential bargain: Like PWRD, just about everything, from the low PE ratio, extremely strong balance sheet, and the future growth potential from the large population in China. According to Yahoo Finance, GA has about $921 million in cash, which gives it plenty of money to invest in the development of new games and Internet sites.
Disclosure: I am long GA, NETC, YHOO, PWRD.
Disclaimer: The data is sourced from Yahoo Finance and Stockcharts.com. The information and data is believed to be accurate, but no guarantees or representations are made. Rougemont is not a registered investment advisor and does not provide specific investment advice. This information is solely educational in nature and not intended to serve as the basis for any investment decision.
Source: 5 Internet Stock Bargains