Tech names are struggling right now. Investors are bailing on hyper-growth tech names like Facebook Inc (NASDAQ:FB), Amazon.com, Inc. (NASDAQ:AMZN), Netflix, Inc. (NASDAQ:NFLX), and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) in favor of low-multiple, big-tax-paying names (look at retail stocks recently). Over the past week, AMZN stock is down about 4%. FB stock, NFLX stock, and GOOG stock are all down about 5%.
Meanwhile, the Dow Jones is up nearly 4% in that same time frame.
While I think the Dow can continue to rally on tax reform hopes, I also think hyper-growth tech names will come back in favor. The underlying fundamentals supporting FB, NFLX, AMZN, and GOOG (among others) are simply too strong to warrant depressed investor demand into the foreseeable future.
The turnaround might have to wait until next earnings season, but these are names that will rebound in a big way and rally in the long-term.
The name I like the most on this dip? Facebook.
FB stock is the most attractively valued stock in the hyper-growth FANG group. It’s also the one posting the biggest revenue growth and second-biggest earnings growth in the group.
Consequently, I’m loading up on FB stock at these depressed levels. It won’t remain this low for that long.
FB Is the Best Stock to Own for the Next 5 Years
I’ve said it before and I’ll say it again: Facebook is the best stock to own for the next 5 years.
Why? Its unparalleled size in the digital space gives it tremendous leverage in driving big growth for a very long time. There are just so many levers the company can pull at any point to kick-start the next leg of super-charged growth.
Think Instagram. Messenger. WhatsApp. Facebook Watch. Marketplace. Workplace.
Through Instagram, Facebook is unlocking the next phase in retail: social commerce. Brands are starting to use social media to not only drive brand awareness, but actual sales conversions as well. Gone are the days of advertising on TV and in magazines. Here are the days of social media promotions.
Given its visual-heavy feed, Instagram is at the front and center of this trend.
Beyond Instagram, there is Messenger and WhatsApp, the social messaging platforms which have 1.2 billion users each and are both just starting on their money-making paths. Over the next several years, Facebook should be able to reap rewards from the booming trend in conversational commerce. Just look at Messenger’s partnerships with Domino’s Pizza, Inc. (NYSE:DPZ) and Fandango, Inc. to understand why conversational commerce is huge for Facebook.
Then there is Facebook Watch, yet another huge growth driver over the next several years. Facebook understands that everyone is shifting towards over-the-top entertainment consumption. Facebook also understands that, with 2 billion users, it is appropriately positioned to jump into the OTT space and deliver original content to consumers directly through Facebook. I fully expect Facebook Watch to a be a main mobile entertainment option in 2-3 years.
There is also Marketplace, which is Facebook’s effort to turn its 2-billion-user platform into a 2-billion-user transaction marketplace. As Facebook legitimizes this business to connect actual retailers with interested consumers, Marketplace could take off.
Finally, there is Workplace, which is basically Facebook’s attempt to replicate its success in the individual social media space at the enterprise level. This business got a huge boost by recently signing Wal-Mart Stores Inc (NYSE:WMT).
Bottom Line On FB Stock
With so many growth drivers over the next several years, there is no doubt in my mind that Facebook achieves 17% earnings growth per year over the next 2 years (this is the consensus Street estimate).
Given huge growth prospects into perpetuity, FB stock easily deserves to trade at a similar growth premium to the S&P 500. The S&P 500 currently trades at a 100% premium to its growth prospects (20 times 2017 earnings for ~10% growth).
Apply that 100% premium to FB stock. You get a “fair” earnings multiple of 34. A 34 multiple on fiscal 2017 earnings of $5.85 implies a fair value of just under $200.
I think that is where FB stock will trend. Recent weakness isn’t a sign of the times. It’s just a pause in a multi-year rally for a strengthening secular growth stock.
As of this writing, Luke Lango was long FB, AMZN, NFLX, and GOOG.