Many great stocks are trading at low valuations due to the concerns over debt in Europe and a possible global recession. Regardless of the final outcome of those potential events, the long term growth of the Internet is going to continue. Rising incomes in emerging market countries, population growth, increased dependence on technology and other factors are likely to keep fueling the growth for the foreseeable future. ÍX
A recent article on Barrons.com details the bullishness of a Barclays Capital analyst:
We believe we are still early in the Internet industry’s secular growth cycle. It wasn’t that long ago when it all began… The year, 1990, was a momentous year in world events. That year, 1) Nelson Mandela was freed after 27 years in prison, 2) the Exxon Valdez struck Prince William Sound’s Bligh Reef and spilled about 500,000 barrels of crude oil, 3) the space shuttle Discovery carried the Hubble Space Telescope into orbit, and 4) Germany was reunified.
With the growth of the Internet still intact, and with stock bargains everywhere, it makes sense to take a closer look now. The Internet is in the very early stages in countries like China, so some of those stocks could have the most potential over the next 10 years. Even some of the best companies have seen there shares trade sharply lower and whenever investors are selling indiscriminately, it's usually a great time to be a buyer for the long term. Here are some names to consider now:
InterActiveCorp (IACI) is trading around $40.63. InterActiveCorp operates a number of well-known Internet sites and is based in New York. The 50-day moving average is $38.76 and the 200-day moving average is $34.59. IACI is estimated to earn about $2.01 per share in 2011 and $2.38 for 2012. Urban Spoon is owned by IACI and is competing with the highly valued Open Table (NASDAQ:OPEN). Based on the valuation of OPEN alone, IACI looks cheap. IACI has about $911 million in cash and minimal debt, so its enterprise value is only about $2.63 billion. IACI also owns other valuable sites, including Match.com. As the Internet grows, so should IACI.
Travelzoo, Inc. (NASDAQ:TZOO) shares are trading at $30.18. TZOO is a Internet company that offers travel and other deals online. The shares have traded in a range between $20.68 to $103.80 in the past 52 weeks. The 50-day moving average is $33.37 and the 200-day moving average is $53.34. Earnings estimates for TZOO are $1.36 per share in 2011, and $1.77 for 2012. Travelzoo offers special deals online that are similar to the Groupon.com business model. Travelzoo.com was a high-flyer, but has since dropped to more reasonable valuations.
Vistaprint (VPRT) shares are trading at $30.18. Vistaprint offers online printing services and products for business. The shares currently trade above the 50-day moving average of $27.72 and below the 200-day moving average of $43.62. These shares have traded in a 52-week range between $23.89 and $56.25. Earnings estimates for VPRT are about $1.61 per share and $1.95 for 2012. Vistaprint continues to take away market share from smaller companies, and there is no reason why this trend won't continue to boost results in the future. This stock has rebounded off recent lows, so I would wait for pullbacks to buy for the long-term.
Quepasa (QPSA) is trading around $3.56. Quepasa operates a online social network and is based in Florida. The 50-day moving average is $4.59 and the 200 day moving average is $7.51. These shares have traded in a range between $2.74 to $15.45 in the last 52 weeks. Earnings estimates for QPSA are for a loss of 46 cents per share in 2011, and a loss of 14 cents for 2012. Quepasa operates a social network site that has some similarities to Facebook. As the name implies, the Quepasa social network primarily appeals to the Latin American community. This stock looks speculative, but it could make sense to buy on dips. When Facebook goes public, companies like QPSA are likely to see increased investor interest.
E-Commerce China Dangdang (NYSE:DANG) shares are trading around $5.90. Dangdang is based in China and is often likened to the Amazon.com of China. These shares have fallen from a 52 week high of $36.40. The 50-day moving average is $7.12 and the 200-day moving average is $17.36. DANG shares have been cut in half since the market started to correct in early August, but the potential of this company is still just as strong. The economy in China is poised to grow much faster than the rest of the world for many decades; this stock has explosive potential. DANG has a current market cap of about $466 million and a enterprise value of about $188 million due to the cash on the balance sheet of roughly $257 million. The cash on the balance sheet of about $257 million is equivalent to around $3.25 per share, so the stock is trading just a couple bucks over cash value. When expectations for DANG were high (shortly after the initial public offering) the stock was trading for about $36; now expectations are extremely low and the stock is a bargain around $6 per share. Earlier this year Goldman Sachs set a $22 price target for DANG shares.
Renren, Inc. (NYSE:RENN) is trading at $5.81. Renren is a social networking company in China. Many call it the Facebook of China. The 52-week high is $24. This stock should see a boost when Facebook goes public. RENN has a market capitalization of about $2.28 billion and a enterprise value of about $868 million due to the cash on the balance sheet of roughly $1.2 billion. The cash on the balance sheet of about $1.2 billion is equivalent to around $3.14 per share, so the stock is trading just a couple bucks over cash value. Reports have put the value of Facebook at around $75 to $100 billion, and that makes buying RENN with a enterprise value of about $788 million a real bargain. The largest social networking site in China -- the most populous nation in the world -- has to be worth more than 1% of Facebook.
Cisco Systems, Inc. (NASDAQ:CSCO) shares are trading at $17.25. Cisco is a premier networking hardware company. The shares currently trade above the 50-day moving average of $15.70 and the 200-day moving average of $17.07. Cisco pays a 24 cents per share dividend, which is a yield of about 1.4%. The earnings estimates for CSCO are $1.70 for 2011, and $1.88 for 2011. CSCO now trades for about 8.5 times earnings and they have an extremely strong balance sheet. Cisco shares hit a 52 week low of $13.30 not too long ago, but have since bounced back. It looks like CEO John Chambers is succeeding with restructuring plans and with regaining investor confidence. For the first time in awhile, the stock even looks good technically, and Cisco is likely to grow with the Internet. I would buy Cisco on any dips.
Data is sourced from Yahoo Finance and stockcharts.com.
Disclosure: I am long CSCO, DANG, RENN.
Disclaimer: 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. The information contained herein is for informational purposes only.