by Mike Cintolo, editor Cabot Market Letter
It's time to begin to coming off the sidelines. Our proprietary market timing indicator has turned positive, so it's time to do some new buying.
We're beginning by adding a trio of technology-related plays to our Model Portfolio: Amazon.com
) and LinkedIn
). Here's a look at these three new additions.
eBay continues to see slow-but-steady growth (10% to 15%) for its online marketplace. However, the ruling reason to own eBay is its PayPal payment system, which already dominates the online payment realm (where it's especially popular among small businesses).
Now management is pushing into the off-line world, which is about 10 times larger. PayPal is now a payment option at 2,000 Home Depot locations, and by year-end, will be offered by 15 other retailers including Office Depot, Abercrombie, JC Penney and Barnes & Noble.
It also inked deals with the #1 and #3 makers of point-of-sale systems! It's trying to be the next MasterCard or Visa!
Of course, there's plenty of competition, and PayPal is still just 40% of eBay's revenues ... but it's growing north of 30% and should propel the bottom line. The stock broke out on big volume, one of the first liquid growth stocks to do so.
LinkedIn has a growth story that's easy to enthuse about-it's Facebook with a suit and tie, and its hiring services, advertising and premium subscriptions are producing triple-digit revenue growth and heady earnings growth, too.
Long-term, we have very high hopes, though admittedly, short-term, the stock is still in the midst of a base-building effort ... something that's normal after the stock nearly doubled during the first few months of the year.
You could consider starting with a small position (maybe half or two-thirds of what you'd normally buy) and look to add shares if LNKD and the market move higher.
For the Model Portfolio, we'll keep it simple and just buy a "full-sized" position here. A decline that takes shares below the 92 to 95 area would be abnormal.
Amazon.com is a truly unusual company-we can't remember the last time we saw a company with $50 billion in revenue growing at 30%-plus rates.
Even with that growth, the stock hasn't done much for months because the top brass has decided to invest profits to expand the business.
We think the 30% growth rates are likely to continue, and big investors are looking ahead to exploding earnings and profit margins as the spending spree ends.
Best of all, the stock has been forming a tight, crisp base following its earnings gap higher in April. On the downside, a drop below the 200 to 205 range would be negative.