A Bet on Digital Advertising

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

Last week was the worst one in recent memory for U.S. markets. The Dow Jones was down 3.78%, the S&P 500 fell 3.52% and NASDAQ tumbled 2.66%. The MCSI Emerging Markets Index had an abominable collapse of 6.21%.

There were no big gainers as such in your Bull Market Alert portfolio. The ProShares Ultra Nasdaq Biotechnology ETF (BIB) actually managed to hit a new 52-week high, before pulling back.

But your short position in PowerShares DB Commodity Tracking ETF (DBC) fell another 4.26% and is now up 14.33%. Remember, last week you adjusted your buy back price to $20.27 to lock in at least a 10% gain in this position.

India’s HDFC Bank (HDB) fell below its 50-day moving average and is now a HOLD.

This week’s Bull Market Alert recommendation takes us into the exploding world of digital advertising.

The Rubicon Project (RUBI) is a global technology helping companies to automate the buying and selling of advertising.

Rubicon’s Advertising Automation Cloud is a highly scalable software platform and a leading marketplace for the real-time trading of digital advertising between buyers and sellers. Rubicon is riding the megatrend of a shift in advertising spending from analog to digital, the move towards automation and the convergence of media across multiple channels.

Here’s why I expect Rubicon to continue its upward run over the coming months.

First, the company is the “gorilla” of its business. Buyers of digital advertising use Rubicon’s platform to reach 96% of Internet users in the United States and over 550 million Internet users globally on some of the world’s leading websites and applications. No wonder the company was recently hired by Apple to help its iAd platform’s adoption of automated advertising for Apple’s more than 250,000 mobile app developers.

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Second, the company is growing by leaps and bounds. In Q3 2014, sales increased 60% to $32.2 million from $20.1 million in the third quarter of last year. The company reported earnings per share of $0.05 in the latest reported third quarter versus a loss in the same quarter of last year. That blew away an expected adjusted loss of $0.17 a share. Analysts project double-digit percentage growth for the company for the next few years.

Third, the stock has exhibited solid relative strength during the recent market pullback. That’s understandable. After all, fewer businesses have less to do with a pullback in the price of oil than digital advertising.

So buy The Rubicon Project (RUBI) at market today and place your stop at $11.80.

If you want to play the options, I recommend the March $15 calls (RUBI150320C00015000), which last traded at $2.00 and expire March 20.

Finally, I want to wish you happy holidays. I will be spending time with my family next week, and I will be back with a final 2014 Bull Market Alert recommendation on Dec. 29.

Portfolio Update

Gilead Sciences Inc. (GILD) dipped 0.45% last week. Although the broader markets suffered last week, Gilead Sciences managed to close the week relatively unscathed. Looking at the future of Hepatitis C, GILD falls on a very short list with competitor AbbVie Inc. as only one of two major drug makers that is likely make any credible headway on the treatment of this disease in 2015. Although GILD did spend considerable time above the 50-day moving average (MA), GILD closed Friday below it and is a HOLD.

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PowerShares DB Commodity Tracking ETF (DBC) fell another 4.26% in your favor last week as the weakness in commodities continued. As it has been for several weeks now, the big news remains focused on the actions of crude oil. With prices now below the key level of $60 per barrel, it is anybody’s guess where the “bottom” may lay — continuing the good news for your short position in DBC. DBC remains a SHORT SELL.

ProShares Ultra Nasdaq Biotechnology ETF (BIB) dipped 1.66%. Although biotechnology is typically regarded as one of the more volatile sectors to invest in, its strength over the past year held steadfast through last week’s market weakness, providing a bit of a safe haven in the market storm. BIB hit another new 52-week high early last week and is a BUY.

Norwegian Cruise Line Holdings (NCLH) gave back 3.72%. Whether it was the negative mood of “Mr. Market,” or news of a fire aboard a NCLH ship, this position ended the week lower after an unbroken run since its recommendation. If markets stabilize quickly and resume a year-end rise, this negative news event will likely be more of a “buy the dip” moment. NCLH is a BUY.

LifeLock, Inc. (LOCK) lost 3.45% last week. As of Nov. 24, 11.30% of LOCK’s “float” (shares held by market investors) is short. Couple this with last week’s unexpected market rout and the probability of a strong year-end finish for markets, and the conditions for a “short squeeze” start to come into focus. If markets continue their slide this week, LOCK’s short-sellers may cover their positions (i.e., buy them back) to lock in gains, giving LOCK good price support moving forward. However, if markets turn and LOCK pushes upwards, the shorts may be pressured to sell (i.e., squeezed) and spike LOCK even higher. LOCK is a BUY.

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Latest Special Report

As a courtesy, I want to bring to your attention the newest version of The Top 12 Stocks for 2015, which features three of my top investment recommendations, as well as bonus picks from each of my fellow investment newsletter editors at Eagle. This report and others are available FREE on my website to you.

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Nicholas Vardy

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