The following first appeared on Money & Markets.
Today, we’re going to take a look at a company that has seemed to permeate every aspect of modern life: social media darling Facebook (FB), the owner of the Facebook, Instagram and WhatsApp apps, among others.
2020 has been an epic year for technology and social media stocks. Not only were most of them unaffected by the virus disruptions; many actually benefitted from them. With most of the real economy locked down, people spent more time in their homes, playing with their smartphones, tablets and computers. And with normal social interaction still somewhat limited, social media has been instrumental in helping people to stay connected.
That’s the upside. Of course, there’s the nasty underbelly as well. Stuck at home and with tensions high in an election year, social media has arguably been used to more to tear people apart than to bring them together, which is something that hasn’t gone unnoticed by prominent politicians itching to regulate the industry or bring antitrust action. So, while the industry is riding high today, the threat of regulatory disruption could be quietly sneaking up on it.
With all of that as an intro, let’s take a deeper look at Facebook. Facebook is up about 20% this year and about 82% from its 52-week lows. But the stock hasn’t been immune to the recent selloff in the Nasdaq. The shares are actually down nearly 20% from their recent highs.
Is this a buyable dip? Or the start of deeper declines?
To get a better idea, let’s look at Facebook using Adam O’Dell’s Green Zone rating system. Overall, Facebook scores an 82 out of 100, which is exceptionally high. This would qualify as a Strong Bullish stock in Adam’s model, and stocks in this bracket have historically outperformed the market by three times on average.
Let’s drill down to see what is driving this high rating.
Quality – Because they tend to have high profit margins and low debt, software and technology services companies tend to rate high on quality. Well, practically none rate higher than Facebook. The company rates a 100 on Quality. It gets no better.
Growth – Facebook isn’t far behind on Growth, where it rates a 99. Our growth composite combines various measures of earnings and sales growth over various time frames ranging from the prior quarter to as much as 10 years. Facebook’s growth metrics look fantastic across the board, as this company was uniquely positioned to benefit from the rise of the smartphone and mobile internet.
Momentum – As you might expect, Facebook rates highly in Momentum as well at 97. 2020 has been a year that has favored tech stocks, and Facebook has really benefitted from that trend. Momentum has been sagging this month but the metrics over longer time frames are fantastic.
Volatility – Low-volatility stocks tend to outperform over time. And despite its rapid growth and high momentum, Facebook is remarkable staid. It rates a 71 on Volatility, meaning that it is less volatile that all but 29% of stocks in our universe.
Value – Perhaps not surprisingly, Facebook rates low on Value at 22. High quality growth stocks generally aren’t cheap, and Facebook is more expensive than 78% of the stocks in our universe.
Size – And finally, we get to Size. Facebook rates a big fat 0 here because, frankly, it’s a huge company with a market cap of over $700 billion. This is clearly not some small, undiscovered gem. It’s a large company that is widely owned.
Facebook rates exceptionally high, which tells us that the current dip is likely worth buying. But remember, this is a quantitative model that looks at historical data for guidance. And historical data is only useful if the future looks pretty similar to the past.
So, while Facebook rates as a very obvious buy here, we’ll want to keep an eye on any developments that could upset the applecart, such as a major antitrust action. As I covered last month, tech stocks could be at risk of a “blue wave” in the November elections.
That’s something we need to monitor. But until something fundamentally changes, Facebook remains a strong bullish stock likely to deliver market-beating gains.
This article first appeared on Sizemore Insights as Winner or Loser: Facebook