By Dave GoodboyNEW YORK ( TheStreet) -- "They need to get rid of
The Facebook of ChinaWhile the lawyers are sorting out Facebook's troubles, otherwise successful social media companies have been knocked down into bargain territory. One of these is Renren ( RENN).
Since shares are below the 200-day simple moving average, this stock does not qualify for my value zone buying system. However, it is a classic break-out buy at $5. The fundamentals look solid. The company is sitting on $1.04 billion in net cash. This works out to be $2.65 per share. This cash can be used to start a stock buyback program, or pay a dividend, which would push the shares higher. It may also be used, as it has been previously, to buy out smaller social media start-ups in China. One never knows if one of these start-ups could have cracked the code, taking Renren down an entirely different and lucrative social media avenue. Another solid positive is that the company is aggressively pursuing partnerships with major technology companies. Renren will partner with Intel ( INTC) for network assistance, as well as Japan's popular photo app, SnapDish. This willingness to work with others unmistakably signals that further deals may be pending. Obviously, Renren could provide any large, western company the perfect marketing gateway to reach the Chinese masses. Partnerships of this sort could easily send shares into the stratosphere. Risks to Consider: Although Renren looks appealing both technically and fundamentally, there are certain risks to investing in the Chinese American depository receipt. Political and macroeconomic risk factors are my primary concerns. As you know, China is far different than the United States when it comes to politics, both corporate and national, not to mention contract law and disclosure. In addition, the latest economic numbers may be signaling a significant slowdown in Chinese economic growth. However, it's critical to note that the economy is still growing like gangbusters; the growth has just missed the consensus estimates. Due to these unknown factors, investors need to position size accordingly and always use stop-loss orders. Action to Take: Renren is set up to be a classic breakout play. Start to build a position by buying on a breakout above the $5 level, and then add to the position on a break above the 200-day moving average. Other knocked-down social media companies such as Quepasa ( QPSA) and even micro-cap IZEA ( IZEA.PK), although not as appealing as Renren, should also be watched for potential momentum buy opportunities.