I am always amazed whenever an IPO "theme" hits the street. Whether it is the "Internet boom" of the 1990s or, more recently, all things "social media," I am stupefied as retail investors buy into the latest hot-trend stock and ante up to pay more than 100x earnings and 20x revenue for a newcomer that promises it is going to change the world. It rarely works out. The recent Facebook (FB) debacle is case in point. The stock has been a disaster since it hit the street at $38 a share, despite myriad red flags before and during its launch.
Most investors would be better served either waiting for the stock to have a year as a public company to get their feet (and usually a much lower stock price) under them and have the lockups expire as well. In addition, there is usually a safer, if less sexy, way to play the same theme. In the case of Facebook, the promise was for phenomenal online ad growth (we will ignore for the moment the company's challenges in the mobile space). If investors wanted exposure to that part of the market, they would have been better off by investing in these two mature but still-growing players in the space, that are offering much more reasonable valuations.
IAC/InterActiveCorp (IACI) has a multitude of Web properties in in the U.S. and internationally, including Match.com, Ask.com, Dictionary.com and Urbanspoon.com. It is about to acquire About.com from the New York Times.
Four reasons IACI is a solid growth play at $52 a share:
- Earnings are marching up at a consistent clip. The company made $2.26 a share in 2011 and is on track for $2.82 a share in 2012. Analysts project it will make $3.55 a share in 2013.
- The company has more than $800 million in net cash on its balance sheet, which amounts to just under 20% of its market capitalization at current prices.
- The company has beat earnings estimates by between 10% and 30% over consensus each of the last four quarters. Consensus earnings estimates for 2012 and 2013 have consistently risen over the past two months as analysts try to catch up to the company's earnings momentum.
- Even after its recent run, the stock is selling in the bottom third of its five-year valuation range based on price-to-earnings and price-to cash-flow ratios. It also yields 1.8% after doubling its payout earlier in the year.
ValueClick (VCLK) provides various products and services that enable marketers to advertise and sell their products through online marketing channels
Four reasons VCLK makes sense as an investment at $16 a share:
- The company has beaten earnings estimates each of the last four quarters by at least 13% over consensus. In addition, consensus earnings estimates have started to move up again for 2012 and 2013 over the last month.
- VCLK is selling near the bottom of its five-year valuation range based on P/E and P/CF. The stock has a median price target of $20 from the 13 analysts that cover the stock.
- ValueClick is growing at a solid pace. It is on track for more than 20% sales growth in 2012 and analysts project double-digit revenue growth in 2013.
- The stock sells for less than 12x forward earnings. After falling some 20% from its highs in the second quarter, the stock is at good technical support levels (see chart below).