Today’s recommendation set the tech industry abuzz with its recent IPO.
Twitter (TWTR)
from Cabot Top Ten Trader
Twitter (TWTR) has all of the characteristics of a big winning stock—a unique and revolutionary product that’s changing the way millions of people share information, triple-digit revenue growth and a big, liquid and new stock that institutions are gobbling up.
The company’s product is unique because it’s truly real-time and conversational; it’s become one of the most popular places people go during breaking news events. And even on a day-to-day basis, it’s a hub for hundreds of millions of people to discover what’s going on that day, as well as share their own opinions on the subject. As advertising offerings expand, revenues are ramping up, and all of the firm’s sub-metrics, like number of active users (232 million at the end of September, up from 167 million the year before) or timeline views (169 billion in the third quarter, up 44% from a year ago), are heading in the right direction.
Possibly the biggest question here is valuation. With a market cap in the $34 billion range, can Twitter stock really do well from here? Every case is different, but we do know that, historically, these highly valued stocks can do quite well if institutions believe rapid growth is likely for another five or six years. The firm’s first quarterly report as a public company is due February 5.
What impresses us most about TWTR is its action since coming public. It formed a nice IPO base, reached new highs above 50 and then soared into the mid-70s before its current pause.
Interestingly, even as the market has weakened, TWTR has held up very well, something you wouldn’t expect from such an “overvalued” name.
We also like that some big investors have already taken substantial positions (T. Rowe Price owns 14 million shares). You shouldn’t invest the rent money here, but a small position, with a loose stop in the low 50s, could work. Earnings are out February 5.
Suggested Buy Range: 56-62
Suggested Loss Limit: 52-53
Michael Cintolo, Cabot Top Ten Trader, www.cabot.net, 978-745-5532, January 27, 2014