Zillow Undervalued as Homebuilding Percolates

Thursday, November 20, 2014 Zillow Undervalued as Homebuilding Percolates   by Jamie Dlugosch   Do hedge funds really know what they are doing?   Sometimes I wonder.   Many of the hedge funds that I follow apply a disciplined fundamental approach to investing on both the long and short side of the market.   While I may disagree with their analysis from time to time, there is at least somewhat of a reasonable basis for the decisions these folks make.   Then there are the gunslingers, hedge fund managers that take a stake in a company no matter the price.     FURTHER READING 8 dividend checks from 1 stock   It's one of the best-kept secrets in the market today... an oil company paying out bigger dividends than Exxon and BP. This highly-profitable company rewards shareholders with unannounced "bonus" dividend checks. And it pays them out every quarter. And that's on top of its regular, scheduled dividends -- meaning shareholders are collecting 8 dividend checks a year, all from this one investment. If you'd like to earn some extra income simply by sitting back and collecting these extra dividend checks, then click here to find out everything you need to know.     These folks are the visionaries and they see certain companies as possessing traits that will make them hugely successful in the future.   And they put their money where their mouth is.   For example Carl Icahn's son, Brett Icahn, has made a ton of money by investing in Netflix (NASDAQ: NFLX) at a time when many thought that stock to be expensive.   It was a brilliant -- and some might say cavalier -- move.   While dad was to be commended for supporting the move, Carl sold his stake too early, even making a bet with Brett against Netflix moving higher.   Brett won the bet.   On Wednesday shares of online real estate business Zillow (NASDAQ: Z) jumped 7% after hedge fund manager at Caledonia, Michael Messara, made the case for the company having an enterprise value of $50 billion.   Now that is what I call a bold statement.   At the moment Zillow has a valuation of a mere $5 billion. Hitting Messara's target would make the stock a proverbial 10-bagger.   It's one of Caledonia's biggest bets and if it hits, it will make the company a ton of money.   Like Netflix when the younger Icahn made the case for that company, Zillow could arguably be viewed to be over-valued at the moment, at least on a fundamental basis.   Shares currently trade for more than 300 times 2014 estimated earnings. Even though earnings are expected to more than double in 2015,that is still a rich price for the stock.   But in a gunslinger world, valuation does not matter in the near term.   Messara clearly believes that Zillow will be able to monetize its business in a big way. In the scheme of things where profits at Zillow may double in value for many years from now, is it all that unreasonable to think the company is worth $50 billion?   To the extent Zillow dominates the market, and they are, these numbers don't sound so outrageous.   Messara is not the only hedge fund manager bullish on Zillow.   John Thaler's JAT Capital Management last week noted in its 13f regulatory filing that Zillow was one of the top new additions to his portfolio.   In some cases Thaler takes positions on an activist basis, but that's not the case here.   He's interested in the potential rocket-ship of growth that is likely to make Zillow a big winner long term.   Occasionally the gunslingers get it right even after a stock has already appreciated greatly.   Whether or not Zillow follows the path of Netflix or goes by the wayside is yet to be determined, but some smart money is betting on the former.   I would too.   Jamie Dlugosch Editor Investor Research Institute   To Read More From Investor Research Institute Click Here
Disclaimer & Important Information Investorresearchinstitute.com is owned and published by Investor Bistro, LLC of Richmond, Vermont. Investor Bistro is neither a registered investment adviser nor a broker/dealer. Readers are advised that this electronic publication is issued solely for information purposes and should not to be construed as an offer to sell or the solicitation of an offer to buy any security. We encourage you to review our full Disclaimer and Disclosure policies. To view our Disclaimer Policy, please click here. To view our Disclosure Policy, please click here. You are subscribed with the following email address: ignoble.experiment@arconati.us To unsubscribe from this newsletter, please click here.	Copyright (c) 2014 Investor Research Institute| Privacy Policy 65 Railroad Street Richmond, VT 05477 PO Box 790