Northern,WI  11/7/2012 (BasicsMedia)  —  LinkedIn (NASDAQ:LNKD): Social Media Bell Ringing and if your watching FaceBook (NASDAQ:FB) trade 50 million shares – going nowhere – your watching the wrong Social Media stock.  Linked In has a smaller MarketCap, but it also has the highest probability of getting a pullback.  I think the lack of clarity in revenue capture industry wide will shrink the lofty expectations currently residing in the Social Media Sector multiples.  LNKD is technically the most vulnerable and is a likely short target for any fund who look for a hedged trade in a growing asset class called Market Neutral because FB is viewed as a slow mover (having lower volatility) than LinkedIn.

LinkedIn (NASDAQ:LNKD) — There is always the stage in a stock run where you look at it and say, ” Why are we up here “, I thnk many managers said exactly that in this stock in August when it hit $120 p/s..I think they are still saying that today with it trading lower this morning and $100 looking like a weak floor and technically Social Media stocks can be robbed of share price/market cap at an analyst whim or CEO stumble.

It always worries me when dorm room executives meet Wall Street analysts.  There is no beer…it’s all about numbers.  LinkedIn is the short portion of any potential Market Neutral trade, with FaceBook or Zinga (NASDAQ:ZNGA) or over sold Groupon (NASDAQ:GRPN) forming some long side combo.

Equity-market-neutral is a hedge fund strategy that seeks to exploit investment opportunities unique to some specific group of stocks while maintaining a neutral exposure to broad groups of stocks defined, for example, by sector, industry, market capitalization, country, or region.

The strategy holds long/short equity positions, with long positions hedged with short positions in the same and related sectors, so that the equity-market-neutral investor should be little affected by sector-wide events. This places, in essence, a bet that the long positions will outperform their sectors (or the short positions will underperform) regardless of the strength of the sectors. Equity-market-neutral strategy occupies a distinct place in the hedge fund landscape by exhibiting one of the lowest correlations with other alternative strategies.

I believe all 3 long-side stocks will experience some tax loss selling allowing you to set up a 2013 Market Neutral trade which will be positioned well.  Tax loss selling will require someone to buy large blocks ( and I exclude any big pressure on FB with it’s deep liquidity), but I do believe these 2 smaller Social Media stocks are good add on’s to a hedged trade.  Social Media stock are not going away…but one needs to be very careful how they set up in trade in a sector where valuations are hard to pinpoint.

 

Disclaimer:  We have no position in any stock here nor are we paid nor are we suggesting any trading strategy.

 

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