Today we look for three social media stocks for the long term. The argument for the segment’s success is almost a guarantee. The pandemic lockdown last year made that point very clear. We need to connect over the internet and in many different ways. We are social creatures and we seek contacts.
The stock market is in a Goldilocks situation. We still have the full benefits of all the stimuli from the White House and the Federal Reserve. The regulators are not concerned about inflation as they pour in trillions into the U.S.
Inflation is absolutely here, but for whatever reason, they choose to ignore it. Everything we buy is way more expensive now than ever. The Federal Reserve is ignoring its mandate for keeping inflation under control. To put it bluntly, people are paying stupid prices for stuff. Eventually they will run out of reasons and there are signs of this now.
Economic reports are strong and my guess is that the Fed will have to taper earlier than its target. The patient now is much healthier and does not need morphine anymore. Getting off the medicine will be a challenge. Equity prices will not like that decision if 2018 was an example. This is to say that whatever stock opportunities we find now carry extrinsic risks. Great stocks with great setups can fall through no fault of their own.
The indices are still breaking records so it’s not a slam-dunk opportunity to load up bullish positions. Being at all-time highs is not reason enough to short it, but investors should temper their enthusiasm. At these levels we must become partial traders as well. Having long-term outlooks reduces the need for surgical entries. But we should avoid setting ourselves up for failure. Getting in late means months before getting back into the green.
If there’s a high chance for a dip, I should avoid adding longs. Missing out on a few upside bucks is not a concern for mature investors. Trading memes is fun but only works in ascending markets. This mantra is yet to survive a test under harsh bearish conditions. The conversations in social media over stock opportunities are ridiculous. You can’t fight it, but you don’t have to blindly join either.
The three social media stocks today are:
Social Media Stocks: Twitter (TWTR)
There was a time when I worried about Twitter’s strategic direction. That’s no longer a concern because they seem to have found a good groove. The founder and CEO Jack Dorsey is still making headlines, but the good kind. The profit-and-loss statement speaks for itself, and it’s ever improving. Therefore, my fundamental reason for expecting problems have dissipated.
Investing in TWTR stock comes down to timing. It is off the $49 mid-May low, but still down 25% from the February highs. This does not inspire setting sizable positions. It is now struggling in the middle of the range. That’s usually where it finds balance for a bit, which is another word for stalling.
The draw to fill the massive gap is strong. But often large gaps likes this offer resistance. It will need the market’s help to finish the job. Otherwise, the better immediate entry would be on a small dip toward $57 per share. In the long run, this is not going to matter much, but I fail to see the urgency.
Twitter’s price-to-sales ratio is a bit of a concern – almost double what it was three years ago. That’s where this appointment comes from. Those who buy the stock now are giving it 14 years worth of full year sales credits. They will be easy to disappoint on the slightest hiccup. Sometimes problems come from external reasons and we have a Fed event this week.
The pandemic put everyone out of work. This was a perfect situation for Pinterest social platform and puts it on our list of social media stocks. It combines social media and retail opportunities seamlessly. On Pinterest, users found entertainment, new business opportunity and social interactions.
Pins stock is now struggling a bit this year. It is only up 4%, which is one-third of the S&P 500. But over 12 months, it beat the benchmark almost six times over. This company stock clearly is on a profitable path for investors. The PINS stock chart is almost identical to that of Twitter. Meaning it is off its earlier highs this year but also off the lows.
PINS faces resistance just ahead of a big gap from the April earnings. Usually these are hard to start but they do provide short-term opportunities. From a trading perspective, I would rather wait for them to breach $71 per share to buy. But from an investment perspective, a few bucks difference is not going to make much of a difference.
PINS stock arguably is already in breakout mode with a target to more than fill that gap. Unlike Twitter stock, this one has had two runs at the highs in February and then again in April. The fight between bulls and bears is almost exactly on even keel. This gives buyers currently no edge. I’m a fan of entering trades where I have some, either from technical or fundamental aspects.
There is no urgent reason to buy PINS stock this week. It will follow the markets in general and those are in limbo of late. Technically, there’s open air above for the bulls to fly through. Instead, they are rotating from one sector into another on bullish days absorbing most of the bullish posture. I sense a bit of hesitation, and I simply want confirmation of upside commitment.
The major triggers would be when pin stock falls below $53 per share, or breakthrough an all-time high. Either of the situations will carry momentum in that direction. But those are two extreme scenarios not immediately on the docket.
Social Media Stocks: Facebook (FB)
Arguably Facebook is the mother of all social media stocks. The company has almost 3 billion monthly active users. That’s four times more than the other two combined. The stock performance has been fantastic at or near all-time highs. The bulls are definitely in charge of FB stock and shorting it is hazardous.
However, this is definitely not an obvious point of entry for the long term. I would rather miss some upside potential here to avoid being the person holding the bag. There will better opportunities closer to $300 per share. A perfect entry point would be even $40 lower. I won’t wait for the surgical entry but I definitely want a better one than now.
There is no imminent reason to expect downfalls but I am willing to wait. Facebook stock will follow the market in general. This week, if the bulls can break out from $339 per share, they have open air. Conversely, if it falls below $323 per share, it could extend the losses for another $13 from there.
There is a trading range for the active investors to scalp profits. Generally my easiest wins come from buying the dip when everybody hates it. The company is a frequent victim of headline risk. They are of such size that they cannot avoid it. Walmart (NYSE:WMT) and Microsoft (NASDAQ:MSFT) went through this decades ago. The company touches so many lives that they will always ruffle feathers.
Those are the golden-entry opportunities and they’ve yet to fail. I remember the experts running away from FB during the Cambridge Analytica debacle. The brave who bought got a 44% discount and a 177% rally. This continues to be my strategy for this wonderful business opportunity. It’s hard to mess up the potential of 3 billion people engaged on a platform for hours at a time.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nicolas Chahine is the managing director of SellSpreads.com.