Seeking Alpha contributor Tim McAleenan put the puck in the back of the net one more time with another fantastic article this past Sunday, The Right Time To Root For Lower Stock Prices. Consider the core of Tim's thesis:
Not all share price declines are equal ... if the share price declines due to the deterioration of earnings and fundamentals, then I am not excited about the share price decline at all. In fact, I'd quickly be approaching "I-just-made-a-bad-investment" territory.
Generally speaking, I completely agree with this. That's the way I feel about my dividend-paying growth stocks. Note, when I say "growth" I refer to both current growth patterns and the potential for an even more rapid future growth clip. For instance, the first stock I want to see drop is Intel (INTC).
While I agree with ultrabook-related bullishness, I look further out into the future as I continue to buy INTC shares. Keeping with Tim's theme, I will take a larger number of shares at a lower price every day of the week on a company that is hardly struggling, but is poised to not only post $3-plus EPS, but create and foster new areas of growth in the coming years. This only makes dividend reinvestment sweeter.
Plenty of people have taken shots at my continued Pandora (P) bullishness. I even have a number of readers express concern for my well-being. Consider the following comment a Seeking Alpha user left for me on a StockTalk:
While I sincerely appreciate the sentiment, there are several things wrong with that statement. They tie into Tim's theme, although they do not necessarily mesh with the criteria he has for being happy with a stock price decline.
Like Michael Bigger, of Bigger Capital, Pandora is another stock I do not mind watching drop:
My cost basis on P now comes in at $10.22. Let's consider several points related to the StockTalk, Twitter exchange and beyond:
- I bought more P at $8.38 yesterday, moving my cost basis from $11.10 to $10.22.
- As I average down in the stock, my on-paper loss never exceeds what I am comfortable with.
- I am scaling into the stock methodically with money some people spend on coffee and a car payment each month. That's how I accumulate speculative positions.
I hope you're right and they manage to turn it around. I like the Seeking Alpha user who made that comment so this is not a shot at him or her, but exactly what is there to turn around? A soft quarter? Near-term weakness in the stock? A chart that has implosion written all over it? I am not an idiot. I recognize the headwinds that are in P's way right now, however, most of these obstacles have very little, if anything, to do with the company's long-term vision.
Certainly, bears can have legitimate doubts about the veracity of Pandora's business model and long-term plans. That, without doubt, contributes to this pressure, but it hardly explains it. This is what an impatient market does when a business model does not execute
overnight. As opposed to critically considering the landscape, it's much easier - and less taxing on cognitive capacity - to just yowl that no business model even exists.
Very few companies, save maybe Amazon.com (AMZN), get a free pass. Based on history and track record, Amazon.com probably deserves this benefit of the doubt; even as a bull, I can say Pandora does not.
It will have to prove that it can execute its model. When, and if, it does, the stock price will follow. I check myself almost daily to ensure I am not rationalizing. I think I am being honest with myself when I say I am not. I have worked pretty hard to get a grasp on the situation. And I realize this is a multiple 20-minute overtime game Pandora is playing in, not a 5-minute OT followed by a 4-on-4 shootout. There's not much to turnaround yet because we have not seen the company achieve anything close to its full potential. Pandora is on the cusp of a mobile revolution. From a recent Interactive Advertising Bureau report:
Mobile experienced the fastest growth of all categories - triple-digit growth year-over-year - up 149 percent to $1.6 billion in full-year 2011 from $0.6 billion in 2010 ...
"This historic moment, with an especially impressive achievement in mobile, is indicative of an increased awareness from advertisers that they need to reach consumers where they are spending their time--in digital media," said Randall Rothenberg, President and CEO, IAB. "Pushing past the $30 billion barrier, the interactive advertising industry confirms its central place in media. Across search, display, digital video, digital provides a wealth of opportunity for brands and consumers. With the proliferation of smartphones and tablets, it is likely that the tremendous growth in mobile will continue as these screens become even more crucial to the marketing mix."
"The year 2011 saw mobile advertising become a meaningful category," said David Silverman, Partner, PwC U.S. "By combining some of the best features of the internet, along with portability and location-based technology, mobile advertising is enabling marketers to deliver timely, targeted, relevant, and local advertisements in a manner that was not previously possible. It is for these reasons that we expect strong growth to continue with mobile advertising."
As this phenomenon plays out, the market will realize the true value of Pandora and reward the company accordingly. I have virtually zero doubt that Pandora will leverage its opportunity and continue to lead the shift to more relevant, targeted, local and interactive ads across types and platforms.
Intel and Pandora represent just two companies I would love to see drop. I will spend what some folks' spend on gas to accumulate both stocks. I am a long-term investor. I allocate my portfolio with several purposes in mind: growth and income and preservation of capital, but with room for relatively risky speculation - at several levels - on long-term narratives I believe will play out.
In any and all cases, a drop in the price of a stock I feel like I know well represents a buying opportunity, just as long as the company's long-term story remains firmly intact. It does at both Intel and Pandora.