Zynga Cracks $5 and Starts Luring Bulls

NEW YORK (TheStreet) -- The best is yet to come for Zynga (ZNGA), which continues to generate exciting news for investors. The social game maker drove home three new 52-week highs this month. Impressively, last week gave us the best closing since July 2012. Shares also closed at or above the key $5 amount every day during the last, albeit short, week.

Trading over $5 is paramount because stocks under that threshold are not marginable at a large proportion of brokers. Many funds and investors won't touch what they perceive as a bankruptcy candidate. Once allowed, some investors will surely use margin to buy shares in Zynga. However, the total stock price significance is difficult to predict.

Last month, I reversed from bear to bull and wrote "Bitcoin and Poker: Zynga's Best Friends" while shares traded for about $3.50. I've remained increasingly optimistic for the company's prospects. I'm particularly attracted to revenue and earnings growth potential beyond 2014.

As shares developed support near $5, I offered a RealMoney Pro option trade idea for investors that are intrigued by the burgeoning capability to grow, but want to utilize a tight downside risk limit. (If you don't have a subscription to RealMoney Pro, you still can read it with a free trial.) On RealMoney, I also issued a Jan. 21 buy recommendation and a follow-up on Jan. 31.

On Friday, Feb. 21, Zynga stock dipped below $5. I used that as a buying dip with an expectation of continued marginality.

Margin allows investors to "double up" compared to an all-cash account. The SEC's Regulation T allows investors to buy stocks with as little as 50% in cash. With portfolio margin, even less cash is needed. According to the NYSE (ICE), investors are currently using record amounts of margin.

Investors' aggressive margin use may be a double-edged sword, though. If margin use is at or near all-time highs, it's reasonable to ask, "Is there anything left?"

Fortunately there is something left. The same NYSE data suggests both cash and margin accounts have significant purchasing capacity remaining.

Don Mattrick, Zynga's top dog, appears to think so too. Mattrick is scheduled to present at the Morgan Stanley (MS) Technology, Media and Telecom Conference on March 3. The timing couldn't be better now that Zynga's stock is out of the doghouse and trading near a 52-week high.

Some may attribute to the forthcoming IPO of King Digital Entertainment -- makers of Candy Crush -- as the catalyst for Zynga's rise this week. A spotlight focused directly on online game markers helps, but it's only one more log on the fire. Candy Crush doesn't fully explain the move in Zynga from $3.50, although it may have improved investor sentiment.

Announcing new real-money mobile slots games -- including Riches of Olympus -- should excite investors more. Zynga is licensed by the U.K. to offer online slots, poker and other games of chance.

I'm fully convinced the U.K. is a warm-up to offering online gambling to other parts of the world. Investors are beginning to realize that the company is transitioning away from a struggling "freemium" model -- a free game with added features offered for cash. Freemium games are vulnerable to the whims of Facebook (FB). But Zynga is working to become a real-money online poker powerhouse on a level playing field with Facebook and every other web property.

More importantly to shareholders, as investors realize this change is afoot, shares should continue their climb higher.

At the time of publication, the author was long Zynga but held no positions in any of the other stocks mentioned.

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

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