Buy … Don’t Fear Tech Weakness
High flying technology stocks started strong on Monday after the holiday break … before running into a torrent of selling in the first hour.
That pressure did not relent until the closing bell.
Some traders worry about buying weakness. You should not fret. Weakness in the shares of companies that are growing fastest represents a buying opportunity.
And there’s one in particular that’s been on my watchlist for a while: The Trade Desk, Inc. (Nasdaq: TTD).
Related Post: How The Trade Desk Has Pioneered the New Era of TV Ads
It operates a best-in-class programmatic digital advertising platform. The software allows big ad buyers like The Proctor & Gamble Co. (NYSE: PG) to buy digital ad inventory across all parts of the internet and connected TV that are not controlled by Facebook, Inc. (Nasdaq: FB) and Alphabet Inc. (Nasdaq: GOOGL).
The appeal of this business is that longer-term, most of advertising spend is ultimately headed in this direction. This would be a huge shift from current trends where digital spend represents only 36% of the money committed to advertising budgets.
Digital is better because it’s measurable. Ad buyers want to know who is watching, and digital offers them that information. It’s also real-time, so an ad buyer is never going to get stuck paying top dollar for a spot that goes live in the fourth quarter of a blow-out football game. The buyer will pay the dynamic, fair market price of that spot based on real time statistics.
Related Post: The Trade Desk Enables New Generation of TV
The problem for prospective Trade Desk investors is that shares never really decline because the fundamentals of the business are too good. So, it was a rare event when TTD shares lost 10.6% on Monday when prices dropped to $832.62.
But I’m not satisfied with that, and you shouldn’t be either.
TTD has closed lower each day earlier this week, with the closing price on Wednesday near $818. The Trade Desk is up 250% this year, so a much larger decline is not entirely unreasonable.
Savvy investors should wait for a substantial pullback before buying.
Jon D. Markman