Social media companies have been some of the best performing over the last year and it may seem like all of the good opportunities have passed you by. It’s true that you’re unlikely to have a chance to get shares of Facebook at $25 again, but that doesn’t mean there aren’t great opportunities still left.
In fact, I’ve found one hidden gem that could net you a 300% return in as little as 6 months.
Before I get to that stock, let’s talk about one other possibility you could consider: Buying call options. You can often get exposure to large, volatile companies by buying options for pennies on the dollar. For instance, you could buy 6 months of exposure to Google or Priceline for 5 to 10% of the cost of the shares. This technique can make trading in large, fast growing companies possible for the average investor. There is one problem though…
Google and Priceline are unlikely to double from here. The companies are relatively mature, they have a huge number of shares outstanding and both own large market caps, so it is unlikely that a bigger business would acquire them any time soon.
Social media on the other hand is a much earlier stage group. Yes, Facebook has a $160 billion valuation and Twitter is just a recent IPO with a $20 billion valuation. However, there are companies out there just under the surface that could capture a niche and grow into valuations like these. What’s the trick?
The trick is finding companies that are on the verge of becoming profitable and have a stable customer base. In many cases, companies that are unprofitable have difficulty attracting investors because there is no valuation support. If the company misses expectations, the stock price falls far and quick but if shares hit their top line targets, it could grow into an Amazon.com. If the customers are locked in to a specific service, and if specific markets are profitable, then the company will produce a long stream of high margin profits when it gains scale.
Google, Priceline and Facebook are prime examples since consumers are loyal to their websites. There is perceived value of higher quality search results, cheaper travel or access to people you can’t get elsewhere. The results may or may not be better, but the perception that they are better drives the traffic. The company I am talking about owns the most traffic in its segment.
This social media company has a market value that is a fraction of the big guys, but its service is available on a global basis. The company is profitable in its core markets, but management has reinvested profits as it grows rapidly, keeping earnings negative.
If this company cut back on its sales and marketing expenses, it could be profitable today thereby justifying a triple digit share price. This price jump could happen soon, but the trade timing is very important. You need to know when revenue will grow faster than management can spend and, in this case, it’s likely to happen in the 2014 fourth quarter.
Recently, high beta stocks have pulled back from their highs and this company pulled back 35%. If it trades back to its prior high by year end, this trade could net you a 300% return in as little as 6 months.
We will be writing about this company next Monday to tell you the exact trade to make in order to capture these gains. All you need to do is sign up for our premium investor alert service, the Tech Stock Jackpot. Sign up and this trade will be delivered to your inbox on Monday afternoon. Look in your email for an exclusive invitation.
Happy investing!
Tom
