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Don't Let King Crush Your Zynga

NEW YORK (TheStreet) -- King Digital Entertainment's (KING) IPO may not win honors as the most pathetic start of a stock, but it demonstrates once again why I will consider buying an IPO only with Goldman Sachs (GS - Get Report) as a lead underwriter. King Digital's sour taste encouraged investors to lose interest in Glue Mobile (GLUU) and Zynga (ZNGA).

For buy-and-hold Zynga investors, especially those using dollar cost averaging to increase exposure, King's missteps are welcomed because they place Zynga on sale even though the company continues to execute. Zynga's recent decline should be viewed in only one light -- a chance to add at a lower price.

Zynga become especially attractive to me in January, and I posted a Real Money Pro trade idea to get long. The stock was trading under $4 at the time. My most recent Zynga trade idea was last week. It's doubtful that the shares will double overnight, but Zynga is now my strongest long idea for investors with a time horizon of 12+ months.

I'm not the only one to think Zynga has further to climb. SAC Capital led by Steven Cohen increased its ownership to 5.1% according a SEC filing last week. Also, Zynga is nothing like King Digital, and it's a serious mistake to confuse prospects of the two.

Both offer games that feed player's addiction on platforms that include Facebook (FB), Apple (AAPL) iOS, Google's (GOOG) Android, Amazon's (AMZN) Kindle and others. King's one-hit wonder makes the current earnings multiple palatable, but as investing veterans know, Wall Street is a forward pricing mechanism.

King's main revenue and profit generator, Candy Crush, is not much more than a new spin on an old game. Some argue that Candy Crush Saga is a copy of CandySwipe, a game that predates Candy Crush by more than a year. CandySwipe's maker, Runsome Apps Inc., and King Digital are fighting over "Candy" related trademarks and who owns the rights.

Zynga has struggled to report a profit lately, but expectations and estimates point at 2014 as a year of profit. I buy into the revenue stabilization theory, but that's not why I bought the stock and why I'm not selling, but adding this week again after this article hits the wire.

As an active trader, I understand why some may wish to trade in and out with the market. However, if you're a long-term investor looking for value, Zynga is a stock with the potential to double within a year from now.

My bull thesis is not built on me going to bed at night hoping or thinking Zynga is about to release another smashing Ville hit. I'm banking on Zynga expanding further into real-money gambling. That's something the company denies, which is ridiculous considering Zynga has the No. 1 play-money poker site in the world based on users. Zynga is also one of the few New York-traded stocks that offer real-money poker in the U.K.

Zynga has formed a partnership with Facebook to help market Zynga's real-money gambling games to U.K. users.

It will take time and investors shouldn't expect to hit the jackpot overnight, but if you can buy it and forget it until after the new year, you should be handsomely rewarded.

At the time of publication, Weinstein is long Zynga.

Follow @RobertWeinstein

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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