It’s tough to muster the courage to buy stocks during a serious market correction. Yet, for long-term investors, this is the time to roll up your sleeves and get buying.
As long as investors pour their money into quality names with solid underlying business, they can rest easy knowing that a market correction only makes stocks like these a value, not a trap.
One that looks particularly attractive in terms of the brand, strong growth and barriers to entry is Facebook (FB).
FB Stock: A Value During This Correction
Not long ago, it looked like nothing could go wrong. After all, Facebook stock went from $78 at the start of the year to a high of $98 in late July. But of course, the recent market plunge has taken a toll, with FB stock off 11% to $87.
Yet, there are no signs that the business of FB is flagging in any way.
In the second quarter of this year, Facebook posted a 39% increase in revenues to $4 billion and free cash flows came to $1.3 billion. Excluding the impact from the currency volatility, the revenues would have been up by 50%.
The main driver has been mobile advertising, which surged by 74% in Q2 to $2.9 billion. Keep in mind that just a few years ago FB had zero mobile revenues, and FB continues to ramp its user numbers. During Q2, the number of daily active users increased by 17% to 968 million.
But since then, there have been some interesting updates. For example, WhatsApp now has more than 900 million monthly active users, up by over 100 million since April. To put this into perspective, Twitter (TWTR) has only 316 million users.
Then in late August, FB announced that it hit the incredible milestone of reaching one billion user visits on a single day. For context, that’s about one out of seven people on the entire planet.
Ordinarily, such news would boost the FB stock price. But with investors in a dour mood, it seems like nothing much matters right now. In fact, while the market downturn owes much to the issues in China, it’s important to remember that Facebook has little exposure to the country.
Despite all this, the fact remains that, for the long-term, FB stock is nicely positioned for the seismic changes in adverting from desktop to mobile. In fact, mobile will account for more than half of marketing spend on digital ads, spiking by 59% to $30.45 billion in 2015 and $65.49 billion by 2019. But this should not be surprising, as consumers continue to spend much time on their smartphones (about 2 hours and 51 minutes per day in non-voice activities).
The Bottom Line on FB Stock
So what about the valuation on FB stock? Well, for the most part, it is reasonable in terms of the growth rate. Keep in mind that FB stock trades at 31 times future earnings, which compares to LinkedIn’s (LNKD) forward price-to-earnings ratio of 51 and and Twitter’s 44 times forward earnings.
So yes, the recent volatility in the markets has been unnerving. But again, it is allowing for some interesting long-term opportunities for investors. And so far, FB stock really looks like a good bet, as the company is positioned nicely in mobile, has top notch properties and does not have exposure to China.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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