On Friday I did close out a trade where I was long Priceline (PCLN) & Short Monster Worldwide (MWW), which was certainly great to see. We had all 5 trades near their limits for a few weeks now but they were not showing much volatility. Friday’s action almost had us close out 3 trades but in the end only one reached the limit. Still, our annualized return remains above 100% to this point, well beyond our objectives. Hopefully this new pick can help things going in the right direction. In both of the past 2 years, our picks in the start of the year have been much more successful than the later ones. Why? I’m not sure honestly but one aspect is that since we close out trades at year’s end, opening new trades in November becomes much more short term trading. Because of that, I will likely stop opening new trades after October. More on that later on though, let’s get to our new stock pick.
This week’s pick was not easy. There were a few names that I liked such as Baidu (BIDU) and Amazon (AMZN) but I was unable to find good stocks to short against these names. Netflix (NFLX) continues to look expensive to me but shorting it seems crazy even if I don’t understand the stock these days. Let’s get started by taking a look at the underlying data from today’s stock pick:
|Ticker||Name||Price||EPS||PE Ratio||PE Next Year||Return YTD||Sales Growth||Analyst rating||Book Value|
Long eBay (EBAY)
Ebay has a strong position in the electronic/online payments sector. I’m not sure how long that will remain with competition from tens of players getting more serious. Credit Card companies such as Mastercard (MA) and Visa (V) seem determined and even Google (GOOG) is now getting involved as well as Facebook (through its credits). That being said, I don’t see any lost momentum for Paypal to this day and as long as that is the case, Ebay will continue to see strong growth in both sales and profits. Paypal does have such a head start that its only problem is that it is facing companies that control entire environments [Apple (AAPL), Google, Facebook, etc] or the dominant offline payment companies (Credit Card companies). It’s a big challenge but I expect eBay to come out with solid results in the coming quarters. As for its auction/ecommerce business, it remains a challenge but I think eBay is doing some things right (such as mobile) so we’ll see but my major expectations are obviously toward Paypal.
Ebay seems valued for failure right now with an expected P/E under 15 for next year. I think the upside is significant with little risk.
(Click charts to expand)
Short The Knot (KNOT)
Ah, sometimes many of you must wonder if I get tired of shorting the same stocks over and over. When they always remain overpriced, I don’t! TheKnot seems to always be priced as if it were going to be bought out or that profitability would get better overnight. I don’t see it. Why does The KNOT have a P/E ratio of 35 for next year with little to no growth? Analysts are not convinced as you can see - and neither am I. The major issue that I have with trading The Knot is that the stock is more volatile than I like. It does seem like the stock is very trendy but overall, the stock is too expensive and I’m shorting it. It’s that simple.
Traffic on eBay’s Paypal:
Traffic on TheKnot.com
Disclosure: No positions on eBay (EBAY) or The Knot (KNOT)