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Favorite Stock: Priceline
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January 10, 2002: 11:25 a.m. ET
Schaeffer: Dot.com travel service survivor has room to go higher.
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NEW YORK (CNN/Money) - Trading under $6, Priceline.com shares may never again rise above $162 as they did in 1999. But the online travel service has done what Pets.com, Garden.com and drkoop.com couldn't: Survive the implosion of most Internet stocks.
Like Yahoo and eBay, Priceline found a way to earn a profit. But profitability is not on the mind of Bernie Schaeffer, CEO of Schaeffer's Investment Research. Rather, Schaeffer likes Priceline stock's recent trading patterns -- which, according to his research, make the shares likely to rise in the months ahead.
Schaeffer took some time this week to discuss his favorite stock.
What draws you to Priceline (PCLN: Research, Estimates)?
I'm a technician and a sentiment analyst first and foremost. I then look at the fundamentals to see if they are supportive. I like the fact that Priceline experienced a major breakout above price resistance at $5 in early December and then successfully retested this level on a pullback later that month.
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Bernie Schaeffer | |
The shares have also been uptrending since November with support at their rising 10-week moving average. So the technicals are positive and improving.
Along with positive price action, I like to see signs of skeptical sentiment as an indicator of potential sideline money that could flow into the stock. According to Zacks Investment Research, there are currently just three analyst "buys" out there on Priceline, compared to eight for Amazon (AMZN: Research, Estimates) and 14 for Yahoo! (YHOO: Research, Estimates) This leaves some nice room for analyst upgrades to help power Priceline higher down the road.
While the stock got hammered in 2000, Priceline shares jumped more than 300 percent last year. To what do you attribute that?
I don't want to use the argument that once a stock plunges from $104.25 to $1.06, as Priceline did, there's no place to go but up, as we know that stocks can and will go to zero as businesses evaporate. I think the key to the positive reversal in 2001 was the fact that Priceline rationalized their operation to the point that they could begin showing a profit, which they've now done for two consecutive quarters.
Click here for Schaeffer's last stock pick, up about 23 percent since he recommended it.
Another factor that many investors forget is market capitalization, as they are far too focused on the share price. Even at today's higher price levels, Priceline has a market cap of about $1.3 billion. This compares to $4.4 billion for Amazon and $11.8 billion for Yahoo!. This by no means proves that Priceline is a good buy, but it does frame the relative expectations. Direct competitors Expedia (EXPE: Research, Estimates) and Travelocity (TVLY: Research, Estimates) are valued at $2.2 billion and $1.2 billion, respectively.
The Internet has not been kind to most business models. Why has Priceline's model, along with other travel companies such as Expedia and Travelocity, worked?
This is a question best asked of a traditional fundamental analyst. My focus as a technician is on the fact that the model is working and that the company has been reporting results that have been meeting or exceeding expectations.
This year promises big profit growth, if the analysts are right. What should investors expect from the stock?
My price targets as a technician are based primarily on current and past price action in the stock. The big decline in 2000 paused for about two months that summer just above the $20 level. Once $20 was penetrated the shares plunged below $5 in just two weeks. It is reasonable to assume that Priceline could rally to $20 before encountering serious price resistance, which would represent a major gain from current levels.
The online travel field is a crowded one. How does Priceline distinguish itself?
Certainly through it's "name-your-own-price approach." But once again this is a question for the Wall Street analysts who cover the shares, particularly for those three brave souls who have "buys" out on the company.
What's your financial interest in the stock?
I own 10,000 shares in a corporate account.
Any final thoughts?
I think the deal they announced with AOL-Time Warner (AOL: Research, Estimates) (the owner of CNN/Money) to market their travel services through AOL's Travel Channel as well as through other AOL Web brands sounds quite exciting. But then again, what do we technicians know? 
* Disclaimer
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