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3 Social Network Names Bulls Should Be Wary Of

Pandora Media Inc (P), Yelp Inc (YELP), and Yandex NV (YNDX) could offer contrarian bears an opportunity

Mar 10, 2015 at 2:42 PM
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The social networking sector has struggled in recent months, as evidenced by the price action in the Global X Funds (NASDAQ:SOCL). In fact, since hitting its most recent high of $20.77 last September, this exchange-traded fund (ETF) has shed roughly 11.2% to trade at $18.44, under stiff pressure from its 200-day moving average. What's more, of the 13 stocks that fall under our social networking umbrella, less than half are currently trading north of their 80-day moving average, and the group has averaged a year-over-year loss of 16%. In spite of this, analyst "buy" ratings have increased to 60% from 57% over the past year.

While there are exceptions in the social networking sphere, a handful of names popped up on the radar as potential plays for contrarian bears. These include SOCL components Pandora Media Inc (NYSE:P), Yelp Inc (NYSE:YELP), and Yandex NV (NASDAQ:YNDX).

Pandora Media Inc (NYSE:P)

P has spent most of the past six months being pressured by its 50-day moving average, translating into a loss of 45%. What's more, the shares matched their March 2 annual low of $14.56 in today's trading, and were last seen lingering near $14.80. However, the satellite radio issue's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 18.54 ranks higher than all other readings taken over the past year. In other words, calls have been bought to open over puts at an annual-high clip in recent weeks.

Outside of the options pits, 63% of covering analysts maintain a "buy" or better rating, while the average 12-month price target of $21.33 stands at a 44% premium to current trading levels. Should P continue with its downward trajectory, an unwinding of optimism in the options pits and/or a round of bearish brokerage notes could translate into a fresh wave of selling pressure on the shares.

Yelp Inc (NYSE:YELP)

YELP has been a long-term technical laggard, down 49% year-over-year to trade at $45.69. Additionally, the equity's 10- and 20-day moving averages appear to be on the verge of forming a bearish cross, suggesting a new layer of resistance is forming. In the options pits, speculators have shown a distinct preference for long calls over puts in recent weeks, as evidenced by online review forum's 10-day ISE/CBOE/PHLX call/put volume ratio of 2.21, which rests in the 75th percentile of its annual range.

Daily Chart of YELP Since January 2015 With 10- and 20-Day Moving Averages

This upbeat outlook is shared elsewhere on the Street, as well. Among the 30 analysts weighing in on the shares, 21 maintain a "buy" or better rating, versus eight "holds," and just one "strong sell." Plus, the average 12-month price target of $66.53 stands at a 46% premium to current trading levels. From a contrarian perspective, the stock could be poised to face additional headwinds, should call buyers begin to jump ship and/or analysts downwardly revise their ratings.


YNDX's technical troubles are in full view today, with the stock bottoming out at a record low of $13.95 in intraday action. This is just more of the same for a security that's shed roughly 56% over the past 52 weeks. Options traders at the ISE, CBOE, and PHLX, though, have bought to open 5.50 calls for every put over the past 10 weeks. What's more, the resultant call/put volume ratio ranks higher than 98% of comparable readings taken in the past year.

The brokerage bunch has taken the glass-half-full approach to the long-term underperformer, as well. Of the seven analysts covering the shares, five maintain a "strong buy" rating, versus two "holds." In addition, the consensus 12-month price target of $22.80 represents expected upside of 60% to YNDX's present price at $14.23. Although it seems some in the brokerage bunch are starting to take note of Netherlands-based search engine's technical troubles, more downgrades and/or price-target cuts -- or capitulation among option bulls -- could create additional losses for the shares.


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