Is LinkedIn a Bubble Stock? (lnkd)
I am nearly speechless about the LinkedIn (Nasdaq:LNKD) IPO yesterday. Nearly. The social media company opened its first day of public trading at $83 a share after it was offered at $45. It finished the day at $94, after trading as high as $122.
This for a company with $15 million in earnings on $243 million in revenues. LinkedIn is now worth around $9 billion.
It reminds me of the Internet bubble from 1999, when the flimsiest businesses could IPO and be instantly granted huge multiples that had no basis in earnings or revenues. Companies like Pets.com, or Webvan.
Many of the Internet bubble companies quickly went bankrupt and were never heard from again. This likely won't be the case with LinkedIn. But the days of trading around $100 a share are probably numbered...
*****How did LinkedIn trade so high in its debut? Well for one, the company floated only 7.8 million shares, less than 10% of shares outstanding. Trading volume was 30 million shares, so it's clear that the stock changed hands frequently during the day.
Some investors will be left holding the bag.
The LinkedIn IPO shows us clearly that there is a bubble for these social media companies. Facebook, for instance, is currently valued at around $70 billion.
*****The irony is that some investors are wondering of there's a bubble for commodity stocks, especially gold and silver.
While commodity stocks have posted some excellent gains over the last couple years, it's difficult to call these "bubble" stocks, because their valuations are supported by revenues, earnings, and macroeconomic conditions.
Even silver, which ran spectacularly after the last FOMC meeting, and plunged just as quickly, hasn't reached the point where valuations are completely divorced form fundamentals.
Quite the opposite, in fact.
Both gold and silver mining stocks trade with valuations that imply some skepticism from investors. And that is a very good thing. Because that skepticism will keep the stocks from overheating, and continue to provide attractive entry points for new investors.
That's not to say that metals and commodities won't have some series of ups and downs. The relative value of the U.S. dollar is a key component for commodity prices. And emerging markets are a key source of demand.
The U.S. dollar is rallying a bit today and you can see the effects oil prices, first and foremost. After pushing back above $100 a barrel yesterday, oil is back to the $97 area.
Oil remains one of the best indicators of economic growth expectations.
*****TradeMaster Daily Stock Alerts' Jason Cimpltells us that the S&P 500 survived a test of support at 1,332 yesterday. Not only that, but it bounced off its 50-day moving average, too.
Jason discussed moving averages in his morning alert to his readers, and I though you might enjoy the discussion:
Moving averages are one of the most popular
and easy to use tools available to any trader. A simple moving average is
formed by computing the average price of a security over a specified
number of periods.
For example: a 10-day simple moving average is calculated by adding the
closing prices for the last 10 days and dividing the total by 10.
This smoothes the plotting of a data series and makes it easier to spot
trends in three ways:
- 1. If the moving average is rising, the trend is considered up. If the moving average is declining, the trend is considered down.
- 2. Another trend identifying method is to compare the price to the moving average. If the price is above the moving average, the trend is considered bullish. If the price is below the moving average, the trend is considered bearish.
- 3. A third way to spot the trend is to compare a short term moving average to a longer term moving average. If the shorter moving average is above the longer moving average, the trend is considered bullish. If the shorter moving average is below the longer moving average, the trend is considered bearish.
The moving average is one of the more basic indicators. And for now most
moving averages of the indices indicate the bullish trend is in tact,
albeit diminishing greatly.
Jason recently released his Top 10 trades for May. And if the stock market does indeed move higher from here, there's no doubt you'll find some big winners from his Top 10 list. This special report comes with detailed charts, analysis and price targets. It's free too, and when you get your copy, you'll also start getting Jason's daily analysis courtesy of TradeMaster Market Forecast. You can get Jason's Top 10 Stocks for May right here.
