Are Global Investors Making Bad Decisions? Five Stocks to Outsmart the Big Dogs
Saudi Arabian prince Alwaleed bin Talal recently invested $300 million in the social networking site Twitter. While many similar sites including Facebook and Linkedin (NASDAQ: LNKD) have solid business models that promise large revenue growth over the next five to ten years, Twitter is a bit more ambiguous. Twitter's business is currently on track to garner up to $140 million this fiscal year, which is better than last year, but not as promising as some analysts may have hoped for.
Does Twitter's limited revenue stream make it a viable growth story that many investors are looking for in the tech sector? Perhaps there are other internet-based company that investors may consider, despite the fact that they may lack the popularity that Twitter has accrued over the last two years. These companies may be able to exploit macroeconomic situations and particular facets in the technology sector, delivering the best risk-adjusted returns for retail investors in today's markets.
Rediff.com (NADSAQ: REDF) is a popular Indian website that amalgamates various internet-based services on its website. Along with its primary search engine, Rediff produces content such as business news, pop culture reviews, and online shopping. Sort of like India's Google (NASDAQ: GOOG), Rediff may be slowly turning into a stock worthy for retail investors.
Retail investors could buy into Rediff in order to gain exposure to the Indian economy. As the Indian population spends more and becomes more economically comfortable, Rediff will ultimately benefit. People will have more access to the site and will likely have less inhibitions regarding paid services. As such, the company could very well profit as the Indian economy gains positive traction.
Sify Technologies Limited (NASDAQ: SIFY) is an Indian-based company that develops Internet and network dependent comers services. Its most recent venture has been in the cloud computing space, and the company appears to be increasingly profitable. Investors may seek to take advantage of India's increasingly modernized infrastructure, which is consistently becoming more reliant on the internet and network communications.
As previously discussed, investors may be able to take advantage of India's robust economic growth with a stock like Sify Technologies, but there is one large risk associated with this specific company. Sify Technology is currently trying to provide solutions for a multitude of business services. With this in mind, the company may be spreading itself too thin. Especially considering its meager market capitalization and its modest revenues in the previous fiscal year - $37.1 million - investors may be wary of the company's ability to excel in any single area of business.
InfoSpace (NASDAQ: INSP) is a company that modifies data aggregation as well as search engine optimization. Recently, Benzinga covered US Congress' proposal for the Stop Online Privacy Act and discussed whether the legislation places companies like InfoSpace at risk for failure. Now that Congress has slightly backed off SOPA, investors may want to look into InfoSpace and its business model. InfoSpace' services have experienced fair volatility over the last several years, which is not surprising given its small market cap and its industry. However, investors may be curious as to why it is a good investment now.
InfoSpace is one of the few companies, right now, that is able to maintain positive cash flows in its industry. It is also trading at relatively low multiples, including price/earnings and price/sales. This combination may be valuable for investors to know, as technical indicators like these are becoming important gauges for investors to guide themselves in these markets.
Demand Media is an internet-based company that distributes and manages content, in written and video form. Demand Media is a unique company that gives freelance content creators a canvass to convey their convictions. This very concept is the basis for social media like Facebook and Twitter, and Demand Media may be on the forefront of content sharing.
Benzinga recently noted that Demand Media could be an interesting purchase for investors, given its business model and financial situation. Demand Media's revenue model makes perfect sense to investors and is fairly straightforward for users. It has also managed to seal contracts with popular websites including eHow.com, Livestrong.com, and Cracked.com. Investors may want to consider investing in smaller American social media to buttress their portfolios.
DemandTec (NASDAQ: DMAN) is an internet-based company that provides investors with an interesting business model. It provides clients with software to optimize pricing decisions. In essence, it dynamically tracks expenses in order to determine its products' prices. Benzinga covered the stock previously, and the company has since been bought out. The company is consistently trading at about $13, but the company is consistently fluctuating by $0.05. Investors with large amounts of capital may be able to profit off of small moves like that.
The Bottom Line:
Social media certainly offers investors interesting investment opportunities, but many market participants are worried about the hype associated with the big names. For this reason, some people constantly ask if large investors are making wise decisions by throwing money at websites like Facebook and Twitter. There are various opportunities in social media that make perfect sense and still offer profitability.
Consumers have a few options when it comes to understanding the US economy. The social media wave is one indicator that could help investors gauge where the global economy is heading into the future. Investors should also keep up with the news via Benzinga Pro to stay on top of major developments that move markets.
Traders who believe that small-cap social media is the way to go might want to consider the following trades:
- Long any of the aforementioned stocks by purchasing shares or call options. Many of them currently appear to be close to a technical support level, so now may be a good time to buy.
- Short another similar company, like LinkedIn (NASDAQ: LNKD). You could short this company to hedge a long small-cap trade or to accentuate your belief that small-caps will continue to dominate the social media market.
- Long the Technology SPDR ETF (NYSE: XLK), which will probably go up if social media as a whole rallies.
Traders who believe that social media is another fad or bubble may consider the following positions:
- Short social media sites until you cannot short anymore. Some people think that social media is one of the biggest bubbles to exist, and if that is true, it could bring down the entire economy.
- Long a company that may actually be beneficial to consumers, such as Groupon (NASDAQ: GRPN). Groupon offers customers genuinely cheap rates and may be used as a hedge against short tech bets should social media show weakness.
- Buy put options as social media companies' earnings announcements come along. The companies may not be able to remain solvent without consistent revenue growth in the upcoming quarters.
© 2014 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.