Zynga, Inc. (ZNGA) is considered by many investors to be a top social gaming company as it has some of the most popular games played on smart phones, mobile devices as well as online. Zynga's "Farmville", "Mafia Wars", "Word With Friends" and other titles are a fun way for people to "stay connected" to family members and friends while playing a game. Since this company's games are also popular with Facebook (FB) users, it is often tied to that company, and as Facebook's IPO created a lot of buzz and then subsequent disappointment, investor interest in stocks like Zynga faded. Zynga shares were trading for over $15 in the past year, but now can be purchased for just over $2. To be sure, this company has had challenges such as keeping top employees from departing, and it is not easy to keep coming up with popular new games. However, at current levels the stock is just too cheap to pass up for a number of reasons. First of all, Zynga shares appear ripe for a seasonal "January Effect" rally which often occurs in stocks that have created losses for shareholders in the current calendar year. With Zynga shares trading for a mere fraction of the 52-week high of about $15, and even the IPO price of $10, there is no doubt that many investors have losses. Tax loss selling in this stock has probably created a real drag on the shares which could be lifted when tax loss selling ends in just a matter of days. If the stock is holding firm around the $2.30 per share level, imagine where it might be trading at when the extra supply of stock being sold for tax reasons fades.
Aside from that seasonal tax-loss buying opportunity, there are some other major positives. The company has about $1.32 billion in cash and just around $100 million in debt. The cash it has on the balance sheet is equivalent to $1.69 per share and that makes this stock look cheap at just $2.30 per share. Also, it trades below book value which is about $2.38 per share. With well over $1 billion in cash, this company has the funds to develop more games or buy other companies. It also has major growth potential if online gambling is legalized in the future and Zynga is taking steps to tap into this industry as it recently filed to acquire a real-money gaming license. Analysts at Needham recently upgraded this stock to a buy and set a $4 price target on Zynga shares. With the stock trading around $2, that would provide investors with a double.