Tuesday, June 15, 2004

"Searching" for targets

Of late, the "search" sector has received a lot of attention. With the Google IPO looming, search stocks have taken off and there aren't any "cheap" ones left.
But if you are willing to take added risk, there are still some opportunities.
I scored a hit when Overture got bought by Yahoo a few months ago. In this case, Overture had a good following on the Street, and i had to wait for a long time to even get in. I got the chance when Overture came out with disappointing earnings leading to a big slump. Just weeks later Yahoo paid a premium! If i had bought before the crash, i would have lost money even after the premium!
Look/wait for such lows to buy.

Here is a list of my current/past search holdings and what i see going for them.

  • Overture : acquired by Yahoo.
  • FindWhat : a likely takeover candidate, but expensive at its current price.
  • LookSmart : speculative. Bought after it lost its most important customer - Microsoft. Still a good buy for larger companies, but the downside is unlimited too! I may add a few more soon.
  • Viewpoint : really a search add-on. Has a thing going with Yahoo. Speculative again, and won't be adding unless i hear something very positive.
  • Ask Jeeves : bought low and sold after some 90% appreciation. Still a good candidate for a Google buy, but expensive right now. May buy again on a pullback.

    Given the emerging search/advertising combo, i believe that some ad firms are also targets.

  • Valueclick : I own a few, but expensive at current price.
  • Doubleclick: Have a good amount, and the price is still attractive. Very safe investment even if it doesn't get acquired.

Another interesting aspect here is enterprise search. Both Yahoo and Google are going to look seriously at current players and possibly buy them. Buying one such company probably is the best use for all that cash Google is planning to raise its the public offering.
Here are my picks :

  • Verity: a strong entity. Low risk; makes for a good buy at current price. May continue as a standalone search company too.
  • Autonomy: again a low-risk takeover candidate.

I own a few of both Verity and Autonomy, and plan to continue adding to my positions.


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