Velti Deserves to Be on Your Radar

Seeking stocks that others ignore, shun, or simply forget gives individual investors like you an edge over the professionals. Getting in before Wall Street discovers them -- or rediscovers them -- means you can stake a claim before they start taking off. 

Here we check out companies with minimal analyst coverage at best and then pair our list with the opinions of the Motley Fool CAPS community. A stock that garners CAPS' top ratings, but hasn't yet caught analysts' attention, could be your next home run investment.

Mobile ad and marketing agency Velti (Nasdaq: VELT  ) could be that one. Only four of the analysts CAPS tracks follow this stock, and while three-quarters of them think it will outperform the broad indexes, 90% of the CAPS members weighing on it see it beating the Street. That may be enough to give you a head start.

But remember: Without much analyst support, you'll have to do more digging on your own to see whether it deserves a spot in your portfolio, so don't just buy or sell them based solely on its appearance here. 

Hiding in plain sight
Shares of Velti have lost 70% of their value in the past four months, falling from their 52-week high of $18 a share down to less than $6 today. They lost half their value in just the past three months alone. So why should an investor want to keep an eye on this company?

In short, mobile computing. According to the market researchers at NPD, tablet computers will overtake notebook PCs by 2016. Mobile PC shipments are expected to hit 809 million units by then, but tablets are forecasted to account from 416 million of them, up from 121 million in 2012, a 28% compound growth rate. In contrast, notebooks will grow only from 208 million to 393 million, just 13.5% annually.

Apple (Nasdaq: AAPL  ) will assuredly maintain its overwhelming lead when it comes to tablets. NPD says it owns 63% of the market while second place Samsung is far, far behind at just 7.5%. The iPhone will also remain a cornerstone of its future, with 35 million units selling in a non-holiday quarter, but Android handsets own more than 56% of the smartphone market (Apple's second at 22.9%).

Don't squeeze the Charmin
Alas, with such growth, however, comes advertising. Analysts at eMarketer say Google (Nasdaq: GOOG  ) is unsurprisingly the industry giant when it comes to mobile advertising, with a 95% share of the search-ads market and 52% for all types of mobile ads. Paid clicks on Google ads jumped 42% from the year-ago period in its most recent earnings report.

Yet The New York Times recently described the phenomenon as going from analog dollars to digital dimes to mobile pennies. Clicking on a mobile-based ad is worth only 40% of the same one on a desktop. And it's noted that more people are reluctant to make purchases from their phones than from their computers. Google, though, says mobile advertising is right where search was in 1999.

Hung up on growth
Velti's first-quarter earnings report seems to add credence to that view. Revenue grew 75% to $51.8 million, generating a net loss of $8.8 million, or $0.14 a share, which was much narrower than last year's $15.9 million or $0.34-per-share loss. On an adjusted basis, Velti lost just $1.1 million, or $0.02 per share.

The ad and marketing agency has been making acquisitions to position it for growth, and its purchase of CASEE, China's largest mobile ad exchange and network, sets it up for that market's own exponential growth trajectory.

Also unsurprising as Google's dominance is the breadth of competition entering the space, from small players like Motricity to industry giants including Microsoft (Nasdaq: MSFT  ) , Yahoo!, and AOL.

Microsoft wants to own the entire ecosystem, much as Apple and Google do, providing hardware, software, and apps all in one place. AOL owns its own content management system, Picatela, that allows it to have the ad fit the phone. Since all phones offer different landscapes, not having to force-fit the image gives it an advantage.

Despite the presence of larger, better-financed rivals, Velti is gaining ground. In addition to the growth it recorded in the first quarter, the size of the average mobile transaction on the Velti platform rose 9% as well, compared with three months earlier. It also raised guidance for the full year.

CAPS member Scottacusrex finds "evolving [opportunities] for growth in global mobile advertising with industry estimates of 300% growth in this segment in the coming years," and at worst it's positioned to be an acquisition target.

I like its prospects, too, and rated it to outperform on CAPS. Let me know on the Velti CAPS page or in the comments box below if you agree it will make its mark on the niche -- or will it be gobbled up before it has a chance to grow?

Swing for the fences
Facebook
's own advertising model has come under harsh scrutiny lately, but The Motley Fool says, "Forget Facebook -- Here's the Tech IPO You Should Be Buying." This company has a number of hidden weapons that keep it from falling into Facebook's advertising trap, so find out who it is by downloading your copy today -- it's free! Or to get the skinny on the entire Apple investment thesis, and 12 months' worth of updates, you can pick up your copy of the Fool's premium research report on the iEverything powerhouse.

Fool contributor Rich Duprey owns shares of Apple, but he holds no other position in any company mentioned. Check out his holdings and a short bio . The Motley Fool owns shares of Apple, Google, Facebook, and Microsoft. Motley Fool newsletter services have recommended buying shares of Google, Apple, and Microsoft and creating bull call spread positions in Microsoft and Apple. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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