Facebook Inc (FB) looks poised for new highs in June after consolidating under $120 this month following another strong quarterly report.
My colleague Eric Dutram chose Facebook for his Bull of the Day in early April before the company beat on the top and bottom lines and here’s what he observed…
Facebook remains in a class by itself for investors, as it is the only one of the four (FANG stocks) with a strong double digit stock performance (roughly) in Q1, and it is now easily leading the group over the past six months as well.
But some concerns are now starting to appear over FB and their prospects. A few are worried about user post levels and publisher interest in the Instant Article program, and the stock is selling off as a result.
However, are these really reasons to be worried about FB shares, or does this present a great entry point for Facebook ahead of the next leg up?
I think that Facebook still represents a great growth story, and if you look to recent estimates and some of its metrics, I think you’ll agree that FB stock is a buy at these levels.
I agreed with Eric back then and I bought FB stock for my Zacks Follow The Money portfolio right before their April 27 report. I’m glad I did, as that strong quarter and outlook prompted analysts to raise earnings estimates significantly in the past 30 days, moving the full-year 2016 consensus from $2.41 to $2.80, representing 88% EPS growth!
Meanwhile, Facebook’s 2017 profit projections rose from $3.37 to $3.81, for a very respectable 36% advance in year-over-year growth.
Why Facebook is Must-Own at New Highs
I made a video blog last week titled 3 Stocks You Can Love at New Highs following another blow-out quarter from Ulta Salon, Cosmetics & Fragrance, Inc. (ULTA). Facebook joined ULTA as one of the three and here’s what I had to say…
This story can be summed up fairly easy: Facebook is must-own for all kinds and sizes of fund managers because it has access to potentially billions of customers who use its platform every day and it is making significant progress on monetizing those eyeballs and clicks with mobile advertising and other initiatives.
You could say that for hedge funds, owning Facebook is like owning Apple Inc. (AAPL) was in the past 5 years: they can’t afford not to.
Could Facebook become “over-owned” by institutions just like happened to AAPL shares in 2013 and this year? Sure it can, and it will. But I don’t think that window is near yet. Maybe 1 to 2 years from now if and when the growth rate slows down.
Lone Pine Capital Likes FB Stock
In the video blog linked above, I also profile one of my favorite hedge fund investors, Steve Mandel of Lone Pine Capital who owns both ULTA and FB. Here’s what he had to say recently about his fund’s approach to investing in Internet stocks…
The internet remains the single most important and disruptive economic phenomenon in the world. It is transforming almost every sector of the economy. A few leading internet companies dominate the scarce real estate on the mobile web, a place where customers are flocking globally. These companies still have significant runway for growth and are not trading for overly demanding valuations.
Increased mobile web use can also improve the economics of existing platforms: e.g., enterprise software companies such as Adobe Systems Incorporated (ADBE) and Microsoft Corporation (MSFT) as they move to accretive subscription models. It also untethers the videogame industry from the boom/bust nature of the traditional console cycle. Internet-driven investments remain the largest portion of our long portfolio.
The impact of the internet is resulting in the permanent and ongoing dismantling of longstanding economic models in advertising, media, retailing, technology and travel, among others. This informs a significant portion of our short portfolio.
I believe this confirms my investment thesis for owning Facebook. In short, I’m long with Lone Pine.
Disclosure: I own shares of FB for the Zacks FTM Portfolio.
Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money portfolio.
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