In early October, I laid out my 10 favorite stocks to buy for the fourth quarter of 2020. Facebook (NASDAQ:FB) was on that list, and today, I’m going to double down on that claim: Facebook stock is one of the best stocks to buy in October and hold for an end-of-year surge.
Why am I so confident in FB stock’s ability to the finish the year with a bang?
Three big reasons. They are:
- Ad spending trends will continue to meaningfully recover into the end of the year, providing FB stock with ample firepower to stay on a solid rebounding trajectory.
- Instagram Reels will see huge user uptake over the next few months, and that will show up favorably in Facebook’s third quarter print and fourth quarter commentary.
- Facebook is aggressively expanding it’s e-commerce capabilities ahead of what will be an online-dominated holiday shopping season, implying big growth for this nascent e-commerce business in November/December.
Overall, FB stock looks positioned for a huge end-of-year rally.
Here’s a deeper look.
Facebook Stock: Rebounding Ad Spending Trends
Unfortunately, it’s hard to get a high-frequency read on ad spending trends. But — because ad spending almost always follows consumer spending — we can use high-frequency consumer spending data as a proxy for ad spending.
J.P. Morgan’s daily consumer spending tracker — which tracks spending through all JPM issued payment cards — shows that consumer spending has continued to recover at a healthy pace throughout August and September. There’s no reason to believe that this recovery will be derailed anytime soon. Rather, the better we get at balancing Covid-19 risks with sustaining economic quasi-normalcy, the more consumer spending should rebound to pre-Covid levels.
As it does, ad spending trends will recover back to pre-Covid levels, too.
Thus, in the fourth quarter, I fully expect ad spending trends to rebound meaningfully. That will create a rising tide which will lift all boats in the the ad industry, especially Facebook, since the company is the most important digital ad platform on the planet.
Third and fourth quarter revenue numbers will come in well ahead of expectations. Those better-than-expected numbers will push FB stock higher.
Huge Instagram Reels Uptake
Facebook recently launched Instagram Reels, a short-video feature which is essentially Facebook’s copycat of TikTok.
Facebook management hopes that Reels will do to TikTok in 2020/21, what Stories did to Snap (NYSE:SNAP) in 2016/17 — which is essentially steal all of the viral app’s engagement and momentum, and channel it into the Instagram ecosystem.
I think that’s exactly what will happen.
There’s already a huge exodus happening on TikTok, partially because of concern regarding U.S.-China geopolitical relations and partially because the content on the app has become too political and polarizing.
At the same time, Instagram Reels engagement is flying higher, largely because it looks, feels and acts just like TikTok — except without the geopolitical risks and polarizing political content. Plus, Reels offers far wider distribution, given that Instagram has far more users than TikTok.
This is just the beginning of the huge TikTok-to-Reels transition. As it continues over the next few months, it’ll show up in Facebook’s earnings reports via better-than-expected user and revenue numbers. Again, those better-than-expected numbers will spark further gains in FB stock.
Big Holiday Season for Facebook Shops
Amid the Covid-19 pandemic, Facebook has aggressively expanded its e-commerce capabilities on Facebook and Instagram through a new initiative called Shops.
Shops is a fully integrated service where consumers can seamlessly transition from product discovery on Facebook and Instagram, which is already happening, to product selection. Shops will promote selection by allowing merchants to easily create mini-shops in-app with catalogs of products and services. To complete the purchase, Shops will enable users to checkout in Facebook or Instagram, if the merchant has enabled checkout services.
Shops is the quintessential solution Facebook has been seeking to crack the social commerce code and seamlessly turn robust discovery today into robust shopping tomorrow.
Long-term, I see it as the foundation upon which Facebook constructs an e-commerce empire.
The first big step in the construction of that e-commerce empire will happen this holiday season, when consumers will do all of their Christmas shopping online, thereby providing Shops a golden opportunity to show off its usefulness to the world.
I think that’s exactly what will happen. Facebook Shops will have a huge holiday season. And it will set up Facebook to turn into an e-commerce powerhouse over the next few years.
As this reality emerges in November/December, FB stock should charge higher.
Bottom Line on FB Stock
Facebook stock is a long-term winner. It’s also just happens to be one of the best stocks to buy for an end-of-the year surge.
So buy FB stock in October. If this end-of-year surge materializes, take some nice profits in the new year. If it doesn’t, buy more on the dip, because long-term, this stock is only going higher.
That’s the beauty of buying a long-term winner with a significant near-term catalyst. If time is on your side, it’s almost a win-win situation.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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