Yelp and Twitter are now bad shorts
After recent declines in their stocks, these companies look bound to become takeover targets.
I think it is well-timed. Twitter hit my downside target of $29 Wednesday, and I'm not going to say I still hate it as much, because I'm sure there are companies that will begin to actually think about buying Twitter if they can figure out how to monetize it.
Remember, Facebook (FB) agreed to pay $19 billion for WhatsApp, and that company had little revenue. I think Twitter could be worth the same amount, which is $2 billion more than where Twitter shares are trading. If the stock goes down another $4 or $5 and stays there, it isn't unthinkable. I do not think Twitter is a great short anymore.
Yelp is down to $3.75 billion market capitalization. I can see Yahoo (YHOO) or Google (GOOGL) paying that price for the company if the stock keeps dropping. Again, I now think that stock is a bad short. It is soon going to be too valuable to someone else.
I am talking about trajectories here, and velocity. These companies were all told that in order to get their stocks to run, they should be like Amazon (AMZN). So they adopted the Amazon model. They have all come along far enough that they have built moats that could proceed to be exploited by a flush Yahoo or a rich Apple (AAPL).
Remember, I am not saying to buy. I am saying these stocks can bounce -- and I am certainly saying that while they had been overvalued these companies have built amazing businesses that are envied by the biggest players.
No, don't buy them for takeovers. The valuations are still too high. But at this pace, that won't be for long -- and you don't want to be caught shorting a company that could turn out to be valuable to a bigger company that wants to own a growing space.
Jim Cramer's Action Alerts Plus: Check out this charitable trust portfolio to see the stocks Cramer thinks could be winners. The portfolio is long FB, GOOGL and AAPL.
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These companies won't soar like other plays in the sector, but they make for great income sources.
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