3 Internet Stocks Ready to Move Higher

NEW YORK (TheStreet) -- On Monday, I touted Zynga (ZNGA) 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 Pandora ( P). 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.

Recent developments suggest a turning tide. Investors should take a long, hard look and ask: Are these events leading up to something pivotal that could catalyze the stock?
  • Pandora Co-Founder and Chief Strategy Officer Tim Westergren testifies in front of a Congressional committee asking for a more equitable royalty payment system.
  • Pandora reenters New Zealand and Australia. It would not have made the move without a fair deal on royalties (e.g., less than 25% of revenues). Could this be a harbinger for more international deals or a framework for future domestic arrangements?
  • The Hill reported last week that Republican Rep. Jason Chaffetz of Utah is drafting legislation that would level the royalty playing field because, as Chaffetz put it: "It seems screwy that royalty rates change so dramatically based on the platform."

Westergren has been yelping about this for years. And now, as Pandora continues to enhance its position of strength in the industry, others finally take the time to not only listen, but act.

Expect drastic change to take place, maybe even before Pandora's current domestic royalty deal expires in 2015. If it does, the stock flies. No two ways about it.

If you're long-term bullish like I am, P is a buy any time noise or broad market weakness takes it under $10 a share, as with ZNGA below the $5 level.

Facebook Walks Lightly

Speaking of catalysts, Facebook ( FB) has plenty, but they're somewhat stealth.

Think about it. Everybody has an opinion about what's wrong with Facebook. What if it turns out there's nothing wrong, or not as much wrong as is popularly speculated? While I would not bet my Manhattan crash pad on it, I side with the rarely publicized FB bullishness.

When the media gets a hold of something and decides it wants to run with it, reality gets tossed out the window. Producers, reporters, anchors -- they all get hysterical. I've been around newsrooms. Trust me, they smell blood first; produce, report and anchor second; and think, in many cases, never.

The Facebook IPO story shifted way too quickly from feel-good cultural item of the year to the source of every bitter person in America's angst and outrage. The media has a way of fueling these sorts of fires. Most investors merely fall in line with the groupthink.

As a society, we love to have somebody or something to hate. It makes us feel better about our own failures and miscalculations. Blame your errant entrance into a potentially volatile IPO like Facebook on a smorgasbord of external forces, but, by all means, exonerate yourself. Welcome to the world of investing where emotion, not logic, dictates too many decisions and hollow reflections.

Through the entire Facebook drama, who has been, by and large, quiet? Facebook.

Call him young, arrogant and inexperienced, but Mark Zuckerberg is above getting drawn into the meaningless media-generated fray. Maybe it's his COO, Sheryl Sandberg, who keeps him in check. Whatever it is, Facebook management and staff have their collective heads down. Tunnel vision. Startup mentality. They have better things to do -- like continue to build a world- and life-changing business -- than attempt to manipulate the "unmanipulatable" bearish onslaught.

These are the types of companies that speak, surprise and suddenly make you wonder what all the bearishness was about.

Facebook reports on Thursday. According to my Briefing.com feed, JMP Securities reiterates a $37 price target and expects inline revenues and a slight EPS beat. If they're right, this could send the stock soaring. Expect to get more clarity on Facebook's mobile initiatives, which, given recent discussions of mobile success at Twitter and Zynga, could help add to upside.

It could be the positive earnings report that did not come from nowhere, but, because of rampant negativity leading up to it, looked like it came from nowhere. That's one of my favorite catalysts. We saw it last quarter with Amazon.com ( AMZN), and I would not be shocked to see it in Facebook's first report as a publicly traded entity.

At the time of publication, the author was long FB, P and ZNGA.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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