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Trading the technology titans

More legs in Naspers, Facebook, GoPro and Cerner Corporation.

472%. This is the return that JSE-listed media and technology group Naspers has delivered over the last five years and there is still more to come from it and other major players in the tech sector.

Driven by the growth in Chinese investment Tencent, Naspers delivered another stellar set of interim results on Tuesday with core headline earnings rising by 24% for the comparable period and the company is still sitting with $1.65 billion in cash available for acquisitions.

Pointing out that 72% of Naspers revenue now comes from offshore earnings, Sasha Naryshkine from asset management firm Vestact told shareholders that his firm continues to rate the stock a “buy” – a view echoed by FNB Securities which points out that its investments in Mail.Ru and Tencent make up more than 100% of the market capitalisation of the shares at the moment. This implies significantly more upside.

However, in the South African context, Naspers is something of an anomaly, in that it allows investors the opportunity to buy into offshore technology operations. With the arrival of platforms like Saxo Bank and Standard Bank Webtrader offering into the local market, offshore investing is becoming more of an option for investors who look at the mouth-watering valuations attached to players like Facebook and Alibaba.

Facebook

Facebook is one stock identified by Peter Garnry, head of equities at Saxo Bank, as offering some potential upside.

Garny recently told clients: “Facebook has few direct peers but in the online advertising segment, Google is its biggest threat and competitor. Google trades at 10.1 times 12-month forward EV/EBITDA multiple compared to Facebook at 19.4 times, but the growth potential is also vastly different. Google has generated $64.8 billion in revenue in the past 12 months compared to Facebook’s $11.2 billion. When you factor in Google’s estimated revenue growth rate at around 10% year on year compared to Facebook’s 40%, then suddenly Facebook looks much more attractive than Google on a like-for-like basis and as a bet on the internet.”

Cerner Corporation

A stock which won’t be on the radars of many local investors but might be worth a look according to Byron Lotter from Vestact is Cerner Corporation which is one of the world’s largest providers of technology into the healthcare sector. Trading on a forward price to earnings multiple of around 38 times earnings, Lotter says that the asset manager continues to acquire shares in the business.

Lotter told clients: “The sector is one you have to invest in and Cerner is one of the leaders in their specific realm. They are making healthcare more efficient, a sector where efficiency is vital. We continue to add.”

GoPro

For those traders looking for something with a bit more volatility, one of the opportunities could be to look at GoPro. Since listing at $24, the company has seen its share price rise 195% to as high as $93 and then falling back to the mid $70s. This has not been a one-way bet and with an estimated price to earnings multiple of around 73 times earnings, risks may be to the downside.

However Kay Van-Petersen, an Asia strategist for Saxo Bank suggests that investors should watch for a pull-back in the stock as a potential buying opportunity. Writing on TradingFloor.com he noted: “The consensus 12-month price target on the stock is $84.00, with the price range being $105 (+48%) to $45 (-36%). The buy-hold-sell skew is around 21% ‘have a buy rating on it’, 64% ‘have a hold/neutral rating on it’ and 14% ‘have a sell rating on the name’.”

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