Zillow (Z): A Stock to Hold Forever

Last week I kicked off this series of Forever Stocks with an introduction that explained exactly what I mean by that term.

If you missed it, keep reading. If you’ve already read it, feel free to read it again—or skip directly to today’s featured stock.

Why Invest in Forever Stocks?

Of all the ways to make money as an investor, perhaps the most rewarding is buying a stock when it is young and then holding that stock for a very long time, while it grows, and grows, and grows, bringing you profits topping 100%, 500%, even 1,000%.

Most experienced investors can easily name forever stocks that they wish they still owned—stocks that have doubled may times over the years. These include not only today’s big winners like Alphabet (GOOG), Amazon (AMZN), Apple (AAPL), Netflix (NFLX) and Tesla (TSLA) but also stocks that were previously hot and are bigger and growing more slowly now, like Carnival (CCL), Cisco (CSCO), Disney (DIS), Home Depot (HD) and Microsoft (MSFT).

But most investors who once owned these stocks don’t own them anymore.

So why are so few investors able to hold winning stocks long-term?

Because they get nervous about short-term concerns. Because they lack conviction. And often, because they become seduced by other stocks, and sell their old winners for modest profits instead of hanging on for the bigger, longer-term payoff.

And then, years later, they often wake up and say, “I wish I’d held onto that stock.”

So, this series of five weekly posts featuring stocks that you can buy with the intention of holding forever is designed to help you do just that.

But note this—the goal of this report is not to identify stocks that can give you a modest long-term return, like Johnson & Johnson (JNJ) and DuPont (DD). Those stocks are fine for conservative investors working to keep their wealth, but my goal is to identify stocks that can make you rich!

I want to identify the next AMZN stock the next AAPL stock, the next GOOG and the next TSLA.

The key attributes I look for in forever stocks are these:

  1. A product or service or business model that is revolutionary
  1. A product or service or business that serves a mass market
  1. A company that’s still small enough to grow rapidly
  1. A company that is not respected—perhaps not even known—by the majority of investors.
  1. Last but not least, I look for a chart that shows that other investors have begun to recognize the company’s potential as well; that tells me that my thinking is on the right track.

For the record, stock #1 was Autohome (ATHM), the Chinese company working to be the center of all consumer-oriented automobile information in China.

And stock #2 is…

Forever Stock #2: Zillow (Z)

(Note: These forever stocks are not in alphabetical order. Instead, each week I’m highlighting the stock that’s at the best short-term buy point.)

Zillow is the world’s largest online organizer of real estate information, with data on more than 110 million homes in the U.S.

Some of these homes are for sale, some are for rent, and many are listed just for comparison. And the data is free to people like you and me!

What did we do before Zillow?

We bought newspapers, and were limited to reading the tiny print of local listings. Or we picked up free real estate magazines and perused the glossy photos.

But with Zillow, you can look at real estate anywhere in the U.S. You can drill deep, you can scan broadly, and you can investigate mortgage rates—all for free!

Zillow gets its money from real estate agents, who have found over the past decade that if they don’t pay Zillow to get their homes shown to house-hunters, they miss out on a lot of valuable leads. And the business, now 13 years old, is still growing fast.

In 2015, Zillow acquired its biggest rival, Trulia, and revenues grew 98% to $645 million. In 2016, they shot ahead another 31% to $847 million. And in the first quarter of 2017, they grew 32% to $246 million. So growth is not a problem here.

As for earnings, Zillow is finally starting to ramp up, with the bottom line expected to total $0.47 per share this year and $0.90 per share next year.

Zillow came public at 20 in July 2011, and topped 60 in its first week. But six months later it was back down to 21.

In the three years that followed, the stock trended generally higher (sometimes with high volatility), peaking at 57 in July 2014 on news of the possible Trulia merger. But the year that followed wasn’t kind to Zillow, as the stock dipped all the way to 16 in early 2016.

A month later, however, the company did a three-for-one stock split, selling Class A shares under the ticker symbol “ZG” and non-voting Class C shares under the old “Z” ticker symbol. Basically, all Zillow shareholders received two Class C shares for every share of Class A and B stock they owned (hence, the 3-for-1 split).

It’s confusing, but the most important point is that Z is the more liquid, well-traded stock. And since the split, Z has done generally well. It was a leader during the market’s spring advance in 2016, rallying as high as 40, and it’s since gone mostly sideways, building a long and strong base in the high 30s.

Technically, a base like this is a very promising pattern, and the promise began to be fulfilled when Z broke out above 40 (into new high territory) in early May, thanks in part to an excellent first-quarter report. The first surge took the stock as high as 44 just two weeks ago, and that was followed by a pullback to 40—which is now acting as a support level. I think buying anywhere between here and 40 will work out well in the short term.

But this is a list of stocks to buy and hold “forever,” and long term, I’m very bullish on both the stock and the company. I think if you buy some and simply hold it, you could see some fine rewards in a decade or two.

Note: Mike Cintolo originally recommended Z in Cabot Top Ten Trader, and if you’d like to get his summaries of 10 hot stocks delivered to your inbox every Monday, you can learn more by clicking here.

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Zillow (Z): Owns 63% of real estate search traffic

By Timothy Lutts, Chief Analyst, Cabot Stock of the Week
From Cabot Wealth Advisory 7/4/16 Sign up for Cabot Wealth Advisory—it’s free!

More Americans now search for the word ‘Zillow’ than the word ‘real estate.’ Those were the words of Zillow (Z) CEO Spencer Rascoff during the real estate website’s latest first-quarter earnings call. Zillow’s online traffic has been trending upward ever since the company bought out Trulia, its biggest rival, for $3.5 billion last April.

More people are searching for houses online than ever—total traffic has grown by 55% in the last three years. And Zillow owns the lion’s share of that search traffic, with a 63% market share.

The company reported 25% pro-forma sales growth in the first quarter, and upped its full-year guidance to a range of $825 million to $845 million—well ahead of the $795 million consensus analyst estimate.

Note:
This stock is in an uptrend today but won’t be forever. So while you could just jump in today and take your chances, what I really recommend is that you get the latest advice of the man who wrote those recommendations over the past few months, Cabot’s own Mike Cintolo. As Senior Growth Analyst, Mike has his pulse on the top-performing stocks of the market every day of the week. His weekly Cabot Top Ten Trader is required reading of all investors/traders looking to get the biggest bang for the buck today, as it ensures that you’re always invested in the market’s hottest, highest-potential stocks. Click here to join today!

Zillow (Z): The leading online real estate website

By Michael Cintolo, Editor of Cabot Market Letter and Cabot Top Ten Trader
From Cabot Wealth Advisory 7/19/12 Sign up for free Cabot Wealth Advisory e-newsletter

Zillow (Z) is the leading online real estate website. The big idea here is that real estate agents spend about $6 billion per year in advertising, and most of that is off-line; Zillow itself has just 1% of the total! Given its booming traffic (especially from mobile devices), it’s a matter of time until more agents pay higher prices to place ads … and in these cases, the “ads” are actually content from a user’s perspective, connecting them with an agent with knowledge of a property.

Z is a very volatile stock and is somewhat hard to handle—shares sank from 44 to 31 during the market correction. But the company is growing sales and earnings at triple-digit rates, and Z has stormed back toward its old peak. I wouldn’t plow in here, but a low-volume pullback toward 40 could be worth a nibble, with the real test coming August 7, when the company will report earnings.

There are a lot of uncertainties, of course, but I think this stock has big potential if the market gets going. For more information, click here.

The Tenth Revolutionary Stock

by Timothy Lutts, President, Chief Investment Strategist and Chief Analyst of Cabot Stock of the Month

February 16, 2015

Originally from Cabot Wealth Advisory

Zillow (Z) is the world’s largest online organizer of real estate information, with data on more than 110 million homes in the U.S.

Some of these homes are for sale, and some are for rent, but many are listed just for comparison. And the data is free to people like you and me!

What did we do before Zillow?

We bought newspapers, and were limited to reading the tiny print of local listings. Or we picked up free real estate magazines, and perused the glossy photos.

But with Zillow, you can look at real estate anywhere in the U.S. You can drill deep, you can scan broadly, and you can investigate mortgage rates-all for free!

Zillow gets its money from real estate agents, who have found over the past decade that if they don’t pay Zillow to get their homes shown to house-hunters, they miss out on a lot of valuable leads.

And the business, now 10 years old, is still growing fast.

In 2013, revenues at Zillow grew 69% from the year before to $198 million.

In the first three quarters of 2014, revenue growth averaged 68% from the year before-barely slowing at all.

And in 2015, the company is likely to grow faster, if one major acquisition goes through.

You see, Zillow has been trying to buy Trulia (TRLA), the #2 company in the business, since last summer. But it’s had to wait for the Federal Trade Commission to approve the merger. And it’s been a long wait.

But last week there were rumors that the FTC had approved the merger, and even though there was no official word, shares of Z and TRLA both shot higher.

As for earnings, Zillow has been profitable since 2011, but earnings growth is uneven, simply because the company is still in investment mode, working to sign up as many brokers as possible.

Yet the company is still small-revenues were $89 million in the third quarter- and thus ripe for years more growth!

As for the chart:

Zillow came public at 20 in July 2011, and topped 60 in its first week. Six months later it was back down to 21.

But in the three years since then it’s been trending generally higher (sometimes with high volatility), and last July (on news of the Trulia merger) it hit a peak of 164!

Since then, both stocks have been deflating slowly as the government review dragged on, and today Z is selling at roughly a third off that old high-which to me looks like a decent long-term entry point.

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Zillow Group (ZG): Institutions moving in

By Timothy Lutts, Chief Analyst of Cabot Stock of the Month
From Cabot Wealth Advisory 10/20/15 Sign up for Cabot Wealth Advisory—it’s free!

For my money, there are two methods of stock-picking that tend to work.

The first is chart-based. You want to find a stock that’s been lifted by a lot of institutional buying power.

The second is value-based. You want to find stocks that are cheap, and that will be higher months and years down the road.

The first system is especially suited for investors who are impatient.

If that’s you, maybe this chart appeals to you.

Note that Zillow (ZG) bottomed in early August, just as the broad marketing was keeling over, and the stock was fairly immune to the selling pressures that took most stocks down in September. That was a sign that institutions were moving in. The stock topped 35 last week, and buying it here might work out fine.

On the other hand, the stock could easily pull back to 30 in any short-term correction—so it’s a tricky situation. What I really recommend is that you become a regular reader of Cabot Top Ten Trader, which originally recommended the stock.

There you’ll not only read Mike Cintolo’s timely analysis of the company’s real estate intelligence and marketing business—including its recent acquisition of Trulia—you’ll also get expert advice on where to buy the stock.

And you’ll get regular updates every week thereafter, along with profiles of 10 strong stocks every Monday.
Details here.

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