You want to know why this business of picking winning stocks can be so hard? One of the principal reasons may be because people are so darned cynical about anything, even when the positives are downright self-evident.
Take AOL (AOL). Last week it reported one of those quarters that showed you that all of the hard work of CEO Tim Armstrong was paying off. The company has reinvented itself, going from a profitless dial-up online concern to a profitable company with terrific properties, including the Huffington Post, as well as one of the best search systems on the web and a fabulous advertising technology that works fabulously with video.
I am always looking for companies that are developing products that work as well or better on cellphones than they do on desktops. That's why I remain devoted to Facebook (FB), which is much better on the cellphone than on the desktop. It is why I think that Twitter (TWTR) can, one day, be monetized, if it could only figure out a way to charge for all of the promotion that individuals and companies get pretty much gratis. It's why I believe that Yelp (YELP) will ultimately be acquired by someone because the mobile app is so useful.
And it is why I had such high hopes for AOL after this quarter when I saw how mobile was truly taking off for the company, including mobile video. Gone were any of the losses from Patch, the excellent but sadly profitless local online journal. Instead, you saw some nascent signs that the company was truly back on the growth path with excellent cash generation.
As Armstrong wrote in the first line of his release: "AOL grew its consumer base strongly and saw continued strength in video, mobile and programmatic advertising, while we also updated the structure and capabilities of the company." AOL, he went on, "continues to grow in strength and we are on a mission to scale the first Media Technology company of the internet and mobile age." Normally that sounds like typical, cynical PR hyperbole, but if you listened to the conference call you recognized that this is the first company that actually may be an alternative to Google (GOOGL) when it comes to sophisticated advertising technology that melds with online video.
In other words, Armstrong had cracked the code of how to make money from video online and the stock rallied on the quarter.
But what happens next? One of the more important analysts out there, an individual from the research firm CLSA, takes the stock to a sell from a hold talking about how the company's desktop business is declining at a fast rate and that the quarter's strength was furthered by aggressive promotional tactics that might not be sustainable. Believe me, if you read this report you would sell this stock nine ways to Sunday.
But you know who didn't read the report? Or if he did, he scoffed at it? Lowell McAdam, the CEO of Verizon (VZ), because today Verizon bid $50, all cash, for the company, fully eleven bucks higher than it was before the recent quarter. Verizon didn't care about the declining desktop business because it is all about mobile and it recognized that AOL had figured out how to make money from videos that are perfect for a cellphone company that wants to get bigger into content and production.
Sometimes you just have to believe. You just have to trust. If you were on the AOL call or you read the releases you heard a compelling case. Until you got whipsawed by Wall Street research.
Fortunately for Armstrong and his co-shareholders, the sirens were ignored and you are all the richer for believing and trusting this man who saved AOL from itself.