5 Reasons to Ignore the Noise and Buy Facebook Stock Now

Advertisement

Facebook stock - 5 Reasons to Ignore the Noise and Buy Facebook Stock Now

Source: Shutterstock

Few companies have experienced as dramatic a reversal of fortune as Facebook (NASDAQ:FB). For years, the social media giant’s CEO Mark Zuckerberg attracted near-universal praise, especially among the younger demographic. Among Millennials and older members of the Generation Z crowd, Zuckerberg was one of their own making it big.

But earlier this year, the company’s proud brand image lost much of its sheen. The Cambridge Analytica controversy, which involved a political data-mining firm accessing FB users’ personal information, aroused intense anger. The idea that Facebook may have inadvertently aided President Donald Trump’s campaign efforts was too much for some of its supporters.

Quickly, Facebook stock bore the brunt of the political fallout. Year-to-date, shares have dropped more than 7%. But that only tells half the story. Since closing at a high of $217.50 on July 25, Facebook plummeted 24%.

I’ve always argued, though, that the bearish attacks against Facebook stock are overdone. While the political controversies are distracting, that’s all they are. The underlying company remains one of the top names in the markets.

Here are five other reasons to buy FB stock right now:

FB Stock May Be Setting Up as a Buy

Source: Shutterstock

As Massive as It Is, FB Is Still Growing

For the company’s last earnings report, the markets hammered FB stock when the underlining company allegedly produced disappointing results. While the social-media firm beat on profitability, it missed slightly against consensus revenue targets.

Facebook also “failed” to meet user-growth expectations. For example, analysts forecasted daily active users (DAUs) to hit 1.49 billion. Instead, the company could only muster 1.47 billion.

But does a 1.3% miss on DAUs justify a single-day double-digit loss on Facebook stock? I don’t think so. Sure, management guided down their expectations for revenue growth in the second half of the year. But the bears are missing the forest for the trees.

Facebook stock, despite having over two billion monthly active users, still finds new ways to attract people. On the flipside, we have Snap (NYSE:SNAP). The company’s Snapchat app lost DAUs for the first time in its history. And it wasn’t a small miss, as analysts expected 193 million DAUs against the actual tally of 188 million.

But the bigger issue is that Snapchat is significantly smaller than FB. Thus, it really shouldn’t be losing users. We can forgive dominant Facebook for coming up short, but it rarely does. That’s something to remember moving forward.

Rethinking What FB Stock Is Makes It Attractive Again

Facebook Is More than Just Social Media

From what I can tell, Snapchat fans mainly use the app to goof off and have fun. For that reason, SNAP skews towards a younger demographic.

In Twitter’s (NYSE:TWTR) case, I view it largely as a celebrity platform. It’s also a cheap and effective way for businesses to generate buzz through the blogosphere. Oh, and it’s the unofficial communication channel for the White House.

The overriding theme for these two main competitors is that their services are vulnerable to commoditization. At any point, a better, more relevant platform can disrupt Snap or Twitter. That’s what FB did to MySpace, and that’s what it’s doing to Snap right now with Instagram.

But will Facebook and, by logical deduction, FB stock, ever face such disruption? I doubt it. The company represents more than just social media. It has evolved into a digital ecosystem that is irreplaceable.

Beyond the usual profile creation and adding of friends, Facebook offers an alternative path for your job search. The platform is also a useful way to research potential job candidates, or to be discovered yourself.

For small businesses, they can create a free Facebook profile and start generating online traffic. Or, they can pay for SEO services and more effectively tap into a data goldmine.

The platform is simply too useful, and that’s why I’m bullish on FB stock.

facebook stock

Source: Shutterstock

Facebook Stock Enjoys a Political Moat

Right now, a debate is raging over how to best control fake news. Recently, management has deployed advanced technology to fact-check photos and videos. I admire their efforts, but with some reservations about the target definition. Journalistically speaking, we shouldn’t label news that don’t fit our personal agenda as “fake news.”

But from a pure investment perspective, I only see good things happening from management’s vigilance. Obviously, this move helps to soothe people who are still angry at the company for supposedly helping Trump’s campaign.

And it’s not just a typical patch-over that other companies — yes, I’m talking about Papa John’s (NASDAQ:PZZA) — perform. Facebook has proven their commitment to eradicating fake news, and it couldn’t come at a better time. With the midterm elections upon us, this is a perfect chance for Facebook to mend fences.

Even if management fails, longer-term, they’re still in prime position. For one thing, the #DeleteFacebook movement hardly swung the needle at all. And if anybody is still upset, they’ll come back eventually. As I said earlier, Facebook is too useful.

Facebook Stock Is a Perfect Contrarian Trade

Source: Shutterstock

Facebook Stock Is a Perfect Contrarian Trade

Here’s a thought to consider: while the markets are still hating on Facebook stock, why not pick some up on the cheap?

Currently, the media is giving you plenty of reasons to sell FB stock. You have, of course, the ongoing political overtones. The bears are overreacting on DAU growth and guidance misses. Recently, we have a report coming out that the leadership team is having hissy fits with each other.

But are these factors enough to crash Facebook? Not only is the company too useful but they have fundamental strengths up the wazoo. For example, you’re not going to find too many publicly traded firms that have balance sheets as clean as Facebook’s. The company doesn’t have any debt because it can borrow from its own cash hoard of over $42 billion.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.

Also, where else are you going to find an almost-half-trillion-dollar name leveraging double-digit revenue and earnings growth? Every indicator suggests that this blip in FB stock is only temporary.

fb stock

Source: Shutterstock

Against the Competition, FB Stock Is the Most Reliable Trade

Right now, every social-media stock is down big from the start of the second half. FB stock is down more than 16%. SNAP and TWTR are down 31% and 35%, respectively.

The discount-diver in me wants to go after either of the two smaller competitors. For Snap, you’d figure someone’s going to target the company, as our own Larry Ramer suggested. Twitter has done an excellent job turning itself around, and it offers content synergies.

But the smart money is on Facebook stock. While the discount isn’t as “generous” as the others, it’s more likely to rebound. The social-media giant has weathered many storms, and it has the financial resources to tackle more if necessary.

More importantly, FB is a superior growth opportunity despite taking over 30% of the world population. That’s serious firepower that you can’t ignore.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2018/09/5-reasons-to-ignore-the-noise-and-buy-facebook-stock-now/.

©2024 InvestorPlace Media, LLC