Billions of Reasons to Go Long Facebook Stock Now

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Facebook stock - Billions of Reasons to Go Long Facebook Stock Now

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In spite of all the worries in the media ticker tapes, the current macro economic conditions still favor the bullish thesis. Company P&L’s are healthier than ever thanks to tax breaks and solid demand.

Interest rates, though rising, are still low relative to history. Consumer spending is still up. Most people I talk to are happy with the way things are going. The country is politically bifurcated, but that is spurring activism. When that happens, good things can get done.

The stock market is still near all-time highs. Yet everyone is bracing for a correction. So there’s no commitment to sustaining a rally too exuberantly.

Facebook (NASDAQ:FB) stock had its own woes. The Cambridge-Analytica event was not their fault, yet the stock suffered the consequences. Management decided not to make the incident public, so the public perception became that FB hid it because they were in the wrong. That perception was not helped by accusations that it hid its over-reporting of video ad viewership numbers.

Since then, Facebook stock paid the price dearly, both on the chart and in public opinion. But that has been a U.S.-centric event. I traveled abroad and I couldn’t find anyone who even spent two minutes worrying about it.

So the opportunity in Facebook stock is that this too shall pass! It’s worth owning for the long term. This is a company that has over a billion users engage daily and for hours at a time on its platforms. There is definite potential there.

How to Approach Facebook Stocks

The Fundamental Opportunity: I am a fundamental trader. I look for stocks that are undervalued relative to what they can deliver in future growth. I look for innovation funded by consistent performance now.

Facebook fits the profile, and the stock is cheap. It only trades at a trailing 22 price-to-earnings ratio. This is cheaper than Microsoft (NASDA:MSFT) and half of the valuation of Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). So owning shares of Facebook right now is not likely to be a financial disaster in the long run.

The stock is undervalued for the potential it can unlock. Even though I’m a fundamental trader, I do pay a lot of attention to the technicals. Facebook stock has suffered a sharp correction since its July high. It fell 30% to $150 per share. This was exactly where it bottomed last April when it fell 18%.

The Technical Opportunity: If the bulls can overcome the descending lower high trend, breaching $164 per share would bring a 15% rally from there. Next week, we will get earnings from GOOGL, MSFT, Amazon (NASDAQ:AMZN) and Twitter (NYSE:TWTR). So the opportunity for a trigger is definitely available.


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The reaction to the last FB earnings report was horrendous. I don’t think management will deliver two ugly reports in a row. So the expectations bar maybe set low. Facebook stock also recently entered the home device market, so I’m sure they will have some exciting news about that and its future uses.

I do worry a little about how concerned management is with the public opinion. I wish they would refocus more on the bottom line than appeasing a few overly concerned politicians with privacy.

Facebook is a platform that only knows about me what I want to tell it about myself. I fail to see this mania over them knowing what videos I like. This is the same asset that other stocks are rallying on, everyone is excited about how Netflix can anticipate what I like to watch, or how Amazon knows what I like to buy. This is no different. I don’t give FB any personal information, but I am okay them knowing my viewing habits and likes.

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Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on twitter and stocktwits.

Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2018/10/billions-reasons-long-facebook-stock-fb-now/.

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