The stock market has been very bullish this year and there are plenty of opportunities to still make money in the near future. In January 2012, financials have had a great bounce back, Google reported disappointing earnings, and many of the tech bubble stocks have bounced back from some very bearish activity in December. In this article, I make 3 Buy recommendations and 2 Sell recommendations that will help you cash in on these trends.
Goldman Sachs Group (GS)
Most financial stocks have had a strong start to 2012, most notably Bank of America (BAC), whose stock has risen over 27 percent. Goldman has also been leading the financial comeback with shares increasing 20.25 percent in the first 3 weeks of the year. Since the financial crisis, Goldman shares have risen as high as $190 and hovered around $150 until all financial stocks took a big hit in the second half of 2011. Goldman has a 1-year target of $130 and is currently trading at $108.74. I expect activity to continue to be bullish on Goldman as the year progresses. The company has very strong positive EPS estimates for 2012 ($11.53) and 2013 ($13.21). In addition, the low earnings estimates are fairly high at $7.85 and $8.40 in 2012 and 2013, respectively. I expect Goldman Sachs to continue to have a very bullish year. Depending on how its earnings go, I expect shares to trade between $120 and $175 by mid summer.
Google shares went down 8.38 percent on 1/20 due to missed earnings, but I believe that now is the time to buy up shares for when the stock makes its comeback. On April 15, 2011, shares dropped 7.8 percent to $533.31 due to bad earnings and then shares eclipsed $600 three months later from its next earnings statement. Google stock currently has very little downside potential because of its massive stockpile of cash, its cash cow search engine, and all of its budding business ventures that are very likely to be successful. I believe that Google shares will act similarly to what they did 9 months ago and the company will be wowing investors again by April.
As I've mentioned in several articles, Zynga is currently my favorite stock of all the tech darlings because of its profitability and dominance of a seemingly perfectly competitive market (online gaming). Since its IPO, shares were down an aggregate 4.3 percent at the close of 1/20. However, there is hope. After an announcement that Zynga is considering an entrance into the online gambling business, shares soared over 6.5 percent on January 20. Not only does this positive reaction suggest that Zynga should make the move, but it also signals how Zynga still has the ability to expand. In addition, an American owned company entering the online gambling space might spark a move to legalize online gambling in the United States. With such a well developed brand, Zynga will have the potential to control a very profitable industry and improve on its value.
Yahoo shares did not take a very big hit after Google's bad earnings announcement, dropping only 1 percent during trading hours on 1/20. With so many leadership issues being fixed and potential takeover rumors holding up Yahoo!'s share price, the company's earnings announcement on January 24, can be what makes shares trade under $15 again. With Jerry Yang leaving the company and Yahoo becoming less of a staple in internet use, I could see Yahoo becoming this year's Research In Motion (RIMM). Even if you don't want to short YHOO, I suggest staying away from it for at least 2 earnings announcements.
I've done a lot of research on Groupon as a company and have published a handful of articles that all reach the same conclusion: Groupon is a doomed company, but the share price won't significantly drop until its major investors finally abandon ship and less biased investors start having more control over the stock. Groupon already has an incredibly high short ratio of 8.8 and the stock has been a roller coaster ride since the IPO. Now that shares are back up around $21 after reaching valleys of $15.24 and $17.72 (closing prices), now is a good time to buy February 17th puts that you can sell at the next valley. If you saw Andrew Mason's 60 Minutes interview, it is very clear that the company has no plan of how to be profitable or how to get rid of mounting competition. Long term, I can see this company becoming a total bust.