NEW YORK ( TheStreet) -- On Monday, I touted Zynga (ZNGA - Get Report) as a short-squeeze candidate.
It turns out my timing could not have been better. The stock bucked a decidedly bearish trend to blow past the psychologically important $5 mark. Zynga reports earnings on Wednesday. If it beats, raises guidance or shows its hand a bit more with regards to online gambling, a move into double digits in short order is not out of the question.
As I explained in the above-cited article, Zynga has several strong constants -- no debt, massive revenue and a first-mover advantage -- as well as many potential catalysts that could burn traders and investors with short positions in the stock. There's no question that short covering fueled a good bit of Monday's move past $5.
That said, do not mistake my ZNGA bullishness as a call to go all-in. It's still a highly speculative and volatile stock, especially around earnings, a time when you should always proceed with caution. An earnings miss or lowered guidance could send the shares reeling to new all-time lows.
But I hope readers take something more universally applicable away from my ZNGA bull case.
Just as you have to be careful going long a stock like ZNGA, you must keep potential catalysts in the back of your mind that could make it fly on a moment's notice. Often, the media and, in turn, investors overdo bearishness in a stock like ZNGA. These misconceptions of reality can burn you if you're short or keep you away from one of the market's better long-term plays.
Assess the bearishness like anything else, but don't let it cloud all objectivity.
Watch Pandora's Royalty Payments
Along similar lines, consider
(P - Get Report)
. Of all of the things that could move this stock higher, the situation surrounding music royalty payments deserves greatest attention. Certainly, an earnings beat next month would catalyze Pandora as it would Zynga.
But thinking long-term, a new and more favorable royalty structure matters more. Ever since Pandora went public, the high cost it pays to stream songs dominates the bear case. And there's no question, Pandora commits way too much revenue to content acquisition. The company knows this. It continues to actively work to improve the situation.