ZNGA Near-Term entry point: Last day of the Year

This is one of those stocks I have a slight emotional attachment to. I couldn't do FB , but I liked ZNGA's IPO, and got killed. I recently posted a comment on another Znga chart, and It got me thinking again...

I believe this stock is being setup for a pop in January - But I only expect a pop, if the fiscal cliff is resolved before it destroys peoples wealth.

Earnings: Oct 4 was when the company killed the share price with an earnings disappointment. This only increased the panic & pain on retail, and forced all the early bargain hunters out. (You know, the kind that tried to catch the falling knife). I hope the next round of bargain hunters starts to play with knifes again in January.

Tax Loss Selling: The end of year sell side volume significantly decrease in January. If there were many traders like me, that had a loss, they would have started selling their blocks in late Nov to create a nice short-term tax loss for 2012 to sell gains against. As the last day of the year approaches, this should be the last day of retail investors have to harvest a tax loss. Of course, stay out if you are still in your wash-sale window.

Risk-On: Znga belongs to the risk on trade group right now, ie when the market is in a good mood this goes up. So, buying on a Risk-off day is the best way to acquire this stock.

Shake up: If Znga goes on a PR attack in 2013, it's a second chance at making some money. And, I don't think they have a choice, they need to prove they are worthy of a second chance, so I 100% expect some help from Znga in 2013 - either more PR about their real money gambling operations, more outright game buying(actually most folks will think this is a negative) or up-selling us on new products during the next conference call. Hopefully they learned a lesson, on Draw Something, and won't over spend next time. If things are really bad, and the CEO gives up, there is one possible alternative, they do a deal: merger, outright sale, private equity, etc. And even that's usually positive for the stock price.

Fair Value: Book is $2.38, cash is $1.69. As long as more goodwill is not written off and next quarter EPS is $0.00/share or positive, book would be a decent entry. But just for an additional margin, lets say year EPS is $-0.18/share, so subtract that from book and $2.20 is an entry with margin.

Earnings: The year end results will probably be out on the last day of Feb 2013. And this time around, I can only hope they will meet or beat their own reduced Oct 4th forecast, which was reaffirmed Nov 13th.

Stock Buy back: What are they doing with the cash? Buying back stock...$200 Million worth. It should put a floor under this thing. In fact, it should be accreditive to book value, if they bought stock below book on the open market. I am too tired to analyze the start date, maybe someone else can figure out when the buyback program will start.

How I think this should be played: If on Dec 31, it stays above $2.30, start buying - but not too heavily, if it goes below $2.20 buy big. During the first week of Jan average in, buy more on the Risk-Off days. Then wait for the Jan/Feb pop. But, if at anytime it goes below $2.10, get out and start again at a lower basis. You can't ignore congress, but unless there is a big S&P correction, Znga won't break too much lower.

Make no mistake, if you hang on to this past Feb earnings pop(or drop), you are gambling - At this time, this company doesn't have defined future - sell on the pop(or drop) and don't look back.

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