Shares of Meta Platforms (NASDAQ:FB) look to have finally found some footing after a serious selloff. FB stock had dropped over 20% from the all-time highs near $385 before bouncing.
Certainly some of the selling was warranted given the over-exuberance of the previous rally. Volatility begets opportunity however. Time to position to be a buyer of FB stock on any further weakness.
Meta Platforms has handily beaten earnings over the past four quarters. Yet shares have remained somewhat subdued in that period. The combination of better-than-expected earnings with sideways stock action means valuation multiples have become decidedly more attractive.
FB Stock Numbers
The trailing price-earnings ratio now sits below 24 and nearing the lowest multiple since March 2020 when it dipped briefly below 23. This was the height of the Covid crisis and also coincided with a major low in FB stock.
The analysts seem to think FB stock is cheap. According to TipRanks, the 35 analysts following Meta Platforms rate it as a strong buy. The average price target is $406.31 or roughly a 22% upside from here. InvestorPlace contributor Joel Baglole echoed a similar bullish sentiment in his recent FB stock analysis.
The technicals are showing improvement for Meta Paltforms as well. The 9-day RSI has turned higher after reaching oversold levels below 30. MACD has improved greatly and is now well above zero. Bollinger Percent B is also back in the green after dipping into negative territory. FB stock is also back above the 20-day moving average.
Source: The thinkorswim platform from TD Ameritrade
FB stock held major support at the $300 level. Shares briefly dipped below that price on Dec. 3 only to reverse course and close well off the lows of the day. This type of price action many times signals that the previous trend has come to an end.
The sellers have become exhausted and the buyers have taken control. It is an even more powerful signal given that it took place at a major support area.
Meta Platforms is entering into a very strong seasonal period. January has been by far the best-performing month over the past decade. FB stock has closed higher 67% of the time in the past ten years. The average gain in that time frame has been 8.3%. This easily eclipses the April gains of 7.7% which were second best. So seasonality certainly a strong tailwind for Meta into the coming year.
Implied volatility for FB options stands at the 47th percentile. This makes option selling strategies still very viable. An out-of-the money bull put spread makes probabilistic sense. You get paid now to be a buyer at lower levels. All in a defined risk fashion.
How to Trade FB Stock Now
Sell FB Jan $300/$205 put spread for a 70-cent net credit or better.
Maximum gain on the trade is $70 per spread. Maximum risk is $430 per spread. Return on risk is 16.28%. The short $300 strike provides a 10% downside cushion to the FB closing price on Tuesday of $334.20, The short strike also coincides with the major support level of $300.
The spread expires Jan. 21, so before earnings that are due Jan. 24. This serves to dampen volatility and eliminate any earnings related risk.
On the date of publication, Tim Biggam 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.
Tim spent 13 years as Chief Options Strategist at Man Securities in Chicago, 4 years as Lead Options Strategist at ThinkorSwim and 3 years as a Market Maker for First Options in Chicago. Tim has appeared on PBS and the Nightly Business report, while maintaining weekly appearance on Bloomberg TV and CBOE-TV to discuss everything from volatility to LEAPs. Tim has also been invited for reoccurring appearances on CNBC’s Volatility Playbook.