I hope you all had a great week! It has certainly been favourable to equity investors, with emerging markets in particular rallying hard on the dovish rate outlook reiterated by Jerome Powell in Wednesday’s FOMC meeting. The global rally also included related currencies and commodities (especially gold) as the DXY US dollar index sank. Writing this blog is starting to feel a bit like ‘Groundhog Day’ recently, but as a long only equity manager I’m certainly not complaining!
In this week’s Trading Club video I featured an update on Facebook (FB) - a stock that we first highlighted as a long idea many months ago. With analysts recommending that investors buy the stock ahead of earnings on 24th July, it was time to check in on the fundamentals supporting our thesis to see whether it was still valid (always do your own research!).
Here’s the note that Barclays put out on Tuesday...
The following comment caught my attention as it appears to suggest that the consensus is still pretty negative on the stock, but appears to be turning...
Trading Club members know that I also love the fundamentals of Facebook's core business, and have long believed the growth story that still appears to be intact. Putting fact before opinion, we looked again at our Company Analysis spreadsheet that represents our Checklist. I fully explain what I think of each of the management, products, financial health, valuation and geographical exposure in this week’s video, and also share some insights from the Million Dollar Traders Course in how to go about performing this yourself with your favourite companies. Lets just say that there weren’t any real negatives to be found here!
Just take a look at that revenue growth. The stuff of dreams!
Another highlight for me was the valuation. An earnings yield of 7.5% is well ahead of Facebook’s 4.1% 5-year average, as well as the market’s 5.1%, making this mega cap growth titan appear like an undervalued Consumer Staple that the Oracle of Omaha might be excited by! The Free Cash Flow yield has been temporarily suppressed due to various fines, but with that growing ever distant in the rear view mirror, I expect the future to present an even greater bargain for patient investors as the company’s approximate 45% revenue growth and margins see the cash pile back up.
Having followed Facebook closely now for a number of months at the Trading Club, as well as holding a position within the fund, it comes as no surprise that the stock looks to be staging a break out above $200 this week.
With a host of positive catalysts in the pipeline, an under appreciated growth profile, and an attractive valuation, this might well turn out to be one of our biggest winners in 2019 (watch the full video at the Trading Club for my technical analysis and price target, plus access to our 12 most recent weekly videos). Time will tell how this plays out, but with the weight of fundamental evidence behind our process, I have conviction that this will be a name to watch closely.
Be better informed than retail investors who do not employ the same tools that we do as professional fund managers by joining us at the Academy to become a member of our Trading Club, or learn from Lex himself with our Million Dollar Traders Online Course.
Have a great weekend!
James Helliwell | Chief Investment Strategist
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