NEW YORK (TheStreet) -- While I dislike most low-priced cult stocks, I absolutely adore misunderstood stocks. When they experience weakness, the words "buy on the dip" become more than just a mindless tout.
Consider Zynga (ZNGA).
On Tuesday -- and for the second time in recent weeks -- the stock sold off hard. This time investors unloaded shares after Zynga made several announcements at its "Unleashed" event.
Zynga intends to make its games more social and accessible across devices and, maybe most importantly, away from the Facebook (FB) platform that catalyzed its success. For a complete summary of what Zynga announced at "Unleashed," see this recap by TheStreet's Nathalie Pierrepont.Just like the one that took ZNGA below $5.00 earlier this month, this selloff is overdone. After hitting an all-time low of $4.78 on June 12, ZNGA rebounded to trade as high as $6.16 on the 25. That's about 29% worth of upside. I saw that coming and added to my position aggressively under $5.00 and a bit more just above that. My cost basis now stands at $5.57. The stock retreated all the way back to $5.77 at Tuesday's close. That's absurd. Because I took advantage of the earlier weakness, I will most likely just stand pat with what I've got. That said, this selloff could represent another buying opportunity. There's no doubt about it if it intensifies. And, if we see sub-$5 again, ZNGA, yet again, becomes a screaming buy. Many investors, and CNBC's Bill Griffith illustrates this, simply cannot wrap their heads around the type of business model companies like Zynga and CEOs like Mark Pincus employ. In a CNBC interview, Griffith railed Pincus about his company's stock price. Pincus, who comes off as a tad socially awkward, did a less-than-stellar job responding. But, at day's end, Pincus could have pulled Ph.D.-level rhetorical speaking skills from his back pocket and Griffith still would not have understood. I'll pull the great wordsmith Haruki Murakami from my back pocket and simply say, "If you can't understand it without an explanation, you can't understand it with an explanation".
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