We’re roughly half way through the June quarter earnings season. Generally speaking, earnings growth is tracking as expected, but revenue growth has been light. Drilling down on several sectors, financials and industrials have been strong, while technology has been mixed and fertilizer stocks have gotten crushed.
Technology cuts a very wide swath and includes a number of areas — from software to chips to PCs, smartphones, tablets, data centers and the equipment inside of them. It also includes gaming companies and cyber security ones, as well as online properties and social media companies. In other words, there are hundreds of companies that are part of the “tech-plex.”
A number of these sub-sectors have reported mixed results, such as the smartphone space with Samsung, Nokia (NOK), Blackberry (BBRY) and others. Price cuts and layoffs at Blackberry, in particular, don’t give you the sense that the company’s outlook is vibrant. That looming smartphone bloodbath is one of the many reasons why I haven’t recommended any of those companies in PowerTrend Profits.
Online is up, up and away! There is one sector that has seen an explosion in stock prices and that group of stocks fits very well within my Always On, Always Connected PowerTrend. I’m talking about those companies that are benefiting from the shift toward online properties at the expense of traditional ones. Examples of these companies include LinkedIn (LNKD), Zillow (Z), Trulia (TRLA) and others like them.
LinkedIn is the digital recruiter and social media site that is seeing strong demand from those looking to connect with former co-workers and seek out new opportunities. It also has become a haven for companies looking to advertise job openings. With 189 million unique visitors in the June quarter, LinkedIn is a platform that is hard to beat. That shift is partly behind the pain being felt at newspapers and similar publications that relied heavily on advertising, want ads and job listings.
Similarly, Zillow and Trulia are benefiting as consumers ditch traditional means of investigating and listing real estate properties to buy, sell or rent in favor of online solutions, as well as ones found on smartphones and tablets. Trulia reported a 77% growth in its June quarter revenues, compared to year-ago levels due to another quarter of record subscriber growth. Monthly unique visitors in the quarter were 34.9 million, an increase of 49% from 23.5 million in the same period last year. When Zillow reports its results in the coming days, I suspect it too will see similar growth across its metrics.
We’ve seen this move before with the online travel companies, like Priceline.com (PCLN), Expedia (EXPE) and Tripadvisor (TRIP) that have decimated what was the local travel agent business. We’ve also seen the impact of Amazon.com (AMZN) on Best Buy (BBY), the now defunct Circuit City and the toll it is taking on Barnes & Noble (BKS). There are more examples, but I think you get the picture.
The issue with the shares of LinkedIn, Zillow and Trulia is with valuation metrics than span 63-157x 2014 earnings, it looks like a bubble is forming in these names. Even Facebook, which is capitalizing on social media advertising and the move to mobile, has seen its shares climb more than 55% over the last 30 days, and is only trading at 40x next year’s earnings. Simply put, these valuations are getting stretched. Like most bubbles and balloons when they pop, there will be a lot noise, followed by deflation. With the stocks, that deflation will be in their share prices, something that is far more painful than the popping of a mere soap bubble.
Ringing the register! With that backdrop in mind, I recommended late last week that PowerTrend Profits subscribers book a steep profit — more than 55% — by selling half of the Facebook position we entered at $24.55 on July 3. I advised keeping half of the position to profit further, but I see no harm in booking a return of that size in under 30 days.
Like the old saying goes — bulls make money, bears make money, pigs get slaughtered. My advice — if you own shares in LinkedIn, Zillow or Trulia, don’t be a pig.
What’s next? Given the strong rise in the stock market year to date — more than 19% — the next question you should consider is — where do I put my profits next? For that, be sure to join us each week at PowerTrend Profits as we look at the intersection of the economy, demographics and more to identify the next big opportunity.
Inside The Government’s Crackdown on Insider Trading with Fox TV’s Charlie Gasparino. Joining me on PowerTalk this week to talk about insider trading and the government’s crackdown on that activity was Charlie Gasparino, author of the new book “Circle of Friends.” I’m sure you’re more than familiar with Charlie and his reporting on the Fox Business Network and the Fox News Channel, where he focuses on major developments in the world of finance and politics. What you may not know is Charlie has won a number of awards for his work, including the prestigious Investigative Reporters and Editors Award for his book “The Sellout.”
Click here to listen firsthand to my PowerTalk
with Charlie Gasparino on insider trading.
After reading “Circle of Friends,” I can easily say that if you liked or loved “Barbarians at the Gate,” “Den of Thieves” or “Liar’s Poker,” then Charlie’s new book is a must read. Like we do on PowerTalk each week, Charlie does a great job of taking you behind the scenes and in the know on this topic that is making major headlines. If you’re looking for a book to read this August, be sure to read this one!
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