Meta Platforms (NASDAQ:META) stock has been cut by more than half in 2022. Although Wall Street has been in a buying mood this week, real world pressures continue to make META stock one to avoid.
Stocks are bouncing back strongly following last week’s dizzying oversold plunge into bear market territory for the broad-based, large-cap S&P 500 and slide to fresh and bearishly leading lows in the tech-heavy Nasdaq. But while investor concern for the economy is taking a backseat to bargain-hunting with the major averages rallying by roughly 2.50%, shares of META are on the defensive and down 1.70%.
So, what gives in the social media giant? (Don’t forget that its year-to-date decline of 53% has been among the worst in large-cap technology). Let’s take a look at some of META stock’s headwinds to better determine if it’s buy worthy.
Meta Platforms Has Issues
There’s little in the way of company specific news to account for Tuesday’s market-bucking share decline in META stock. But back from the Juneteenth holiday, investors could be giving a cautious analyst note a second a second look and taking it a bit more seriously.
A dour update issued Friday by Needham’s Laura Martin failed to impact META, as shares finished the session up 1.78%. Martin reiterated a hold rating and price target of $160 for Meta Platforms, which likely played a role in the initial dismissive reaction.
Nevertheless, Needham’s addressed concerns aren’t simply going away and could arguably construct a more bearish framework for META stock going forward.
Meta Platforms has many issues to contend with. For example, Facebook Reels’ inability to challenge top rival TikTok, Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) YouTube in long form video, competition in ecommerce from Google and Amazon (NASDAQ:AMZN), falling consumer brand value and Meta’s risky metaverse pivot, which might overlook its existing platforms.
META Stock Has Price Chart Problems Too
Source: Charts by TradingView
Cheaper isn’t always more valuable. Despite its seemingly attractive valuation, given all the obstacles mentioned above, META stock may be at increased risk of missing forecasts and bearish revisions not yet priced into shares.
Today, Meta Platform’s bear market could still have a great deal of downside risk ahead of META stock’s monthly price chart. Technically, shares this month failed to hold an engulfing hammer candlestick bottoming pattern.
Coupled with long-term trendline support and META’s 10-year 50% Fibonacci level, which is also broken now, and stochastics shifting into a bearish setup, this year’s developing down channel hints at a shares trending toward Meta’s 76% level and $100 into 2023.
However, META stock is currently testing the 62% Fibonacci level, which could feasibly help with a bullish reversal. And META’s Covid-19 low near $137 could always set the stage for a double bottom to form. But in picking a side, the bears appear to have an advantage.
Investing In META Stock
Despite this year’s significant loss, a price target of $100 in META stock opens up a substantial profit opportunity — a return of 38% on the table — for bearish investors. Of course, as indicated, there’s always the possibility shares don’t continue to trend lower.
One workaround to minimize upside risk and capture outsized profits in the event shares more or less bearishly cooperate during the rest of 2022 is with an out-of-the-money META bear put spread. For less than a handful of percentage points in share price (and given the stock forecast), one such opportunity that fits in nicely is the Nov $145/$120 put spread.
Alternatively, if investors can’t help but like META stock at current prices, I’d similarly point to a long vertical spread using call contracts or a fully hedged collar for those interested in owning shares. But again, the belief is those efforts will be in vain and only serve the purpose of vastly reducing downside risk.
On the date of publication, Chris Tyler 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.