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Pandora Media, Inc. (P)

You’ll receive your new Investment Digest issue this afternoon. Here’s today’s Daily Alert recommendation, from Cabot Top Ten Trader Editor Michael Cintolo.

“Pandora Media, Inc. (P, NYSE) has about as much risk and reward as any young growth stock out there. On the upside, the company’s leading position in online radio...

You’ll receive your new Investment Digest issue this afternoon. Here’s today’s Daily Alert recommendation, from Cabot Top Ten Trader Editor Michael Cintolo.

“Pandora Media, Inc. (P, NYSE) has about as much risk and reward as any young growth stock out there. On the upside, the company’s leading position in online radio serves a true mass market; in May, for instance, a whopping 71 million people were active listeners (up 33% from a year ago), and they collectively listened to 1.35 billion hours of music, up 22%. And those gains came despite Pandora capping the amount of listener hours per month in an effort to keep royalty payments to record labels down.

“Currently, Pandora owns about 7.3% of the total U.S. radio market (up from 5.8% a year ago), making it the biggest radio station in the country! And that’s where the big potential lies—as more and more advertising dollars go from traditional radio to online, Pandora is likely to benefit in a huge way. One analyst opined that the company’s ad revenue could grow from about $300 million in 2013 to $1.8 billion in 2018, a six-fold increase that is sure to lead to humongous profits. So what could go wrong?

“Competition, especially from a big player like Apple, which is launching an iTunes radio service this fall. The question is whether Pandora’s lead and name recognition has grown large enough to fend off these kinds of threats; many short sellers think not (there are 33 million shares short out of 175 million!). But big investors think yes, or at least, that the market will be big enough for multiple players.

“All in all, we like it.

Technical Analysis

“P is very choppy and volatile, and can be pushed up or down by news—reports that Apple was getting into the business pushed the stock lower in late-May, but positive comments from a couple of analysts have caused buyers to rush in during the past couple of weeks. We do like the power of this upmove, however, it’s usually been better to buy this stock on pullbacks, even during the healthiest of market environments. Thus, we’ll set our buy range down a bit and advise using a loose stop. Suggested Buy Range: 19-20. (Cabot’s buy range is valid for two weeks.) Suggested Stop-Loss: 16-16.5.”

Michael Cintolo, Cabot Top Ten Trader, www.cabot.net, 978-745-5532, 7/8/13