Swiping Right on Tinder’s Grampa
Eight weeks ago, I encouraged you to take a step back and trade as little as possible for the remainder of the summer.
There will be big up moves that will tempt you to lock in the gains and big down moves that will make it seem sensible to limit the downside. And then we could be in for weeks of a volatile and directionless chop fairly typical of the summer dog days. Resist the urge to act on short-term price action and news that will be long forgotten by October.
Today, the Nasdaq Composite is up not quite 1% over the all-time high it held at the time. Score another point for minimizing portfolio churn.
Our portfolio has fared considerably better than the Nasdaq over the past two months. It’s been led higher by July recommendations IPG Photonics (IPGP) and Tencent (TCEHY) along with IAC Interactive (IAC), Himax (HIMX), Biotelemetry (BEAT) and Microvision (MVIS). The lone fly in the ointment has been the big pullback by medical software developer Evolent Health (EVH), a pick I still believe in.
As promised, trading less has not meant doing less research or standing pat. Days later I increased the buy limit on BEAT, and the remote medical monitoring provider has continued to reward that confidence. A month ago I recommended building stakes in Cognex (CGNX). Pulling the plug on Seagate (STX) while buying the dip in Western Digital (WDC) has also worked out to this point.
The Nasdaq shows few signs of slowing down, setting a new all-time high just a week ago. It is against this backdrop that I tried this week to answer a reader’s question about what’s most worth buying now.
On the megacap end of the tech spectrum, I continue to prefer Alphabet (GOOG) to all others. Only Apple (AAPL) phones rival the profitability of Google’s advertising platform, but I think Google’s business has a much lower risk of disruption by a rival.
Apple’s only as good as its next phone, and competitors in China and elsewhere are constantly nipping on the iPhone’s heels. I believe that one day they will catch and maul it.
In contrast, Facebook (FB) is Google’s only serious competitor for the online advertising dollar, and at the moment the market is growing fast enough to accommodate both tech giants. And of course Google remains much cheaper based on the cash flow it generates. GOOG remains a buy below $1,050.
Internet commerce incubator IAC Interactive is another portfolio position worth expanding. IAC owns 81% of online dating leader Match Group (MTCH), which is only up 29% since it was floated two months ago. Match owns red-hot Tinder, the hookup app that became the App Store’s top grosser last week after rolling out a premium subscription service. Speculation is rife that a Tinder IPO is coming soon, and that’s a reasonable guess. At a mooted valuation of $3 billion Tinder would account for a third of IAC’s market cap, even though it’s generated no profits to this point. And of course IAC has another stallion in its stable in HomeAdvisor, the online marketplace matching homeowners with contractors. Given its track record (Expedia, TripAdvisor, Match) and the growth prospects of Tinder and HomeAdvisor, IAC is probably not done. I’m raising its buy limit to $130.
Lastly, on the risky and small-cap end of the portfolio spectrum, MVIS is up 27% over the last two days, on no news.
Microvision’s PicoP technology can transform a smartphone into a media projector as well as a laser 3D scanner. This is a red-hot growth business as marketers wake up to the commercial possibilities of augmented reality.
With several new technology designs recently completed and shared with potential partners, the company is expecting additional contract wins in the months ahead. Perhaps this is what the buyers are anticipating.
A pullback is always possible after a surge like this, but the pickup in trading volume accompanying this breakout is encouraging. I’m raising the buy limit on MVIS to $3.75.