Facebook Is My Pick For 2017

Facebook (NASDAQ:FB) has long been a stock that I wanted to purchase for my portfolio but have never done it till now. A little over a month ago I wrote an article about how the company has missed on some metrics, and as a result, I was willing to purchase the stock at $115 if it ever fell to that level by writing the November put, but the stock never reached that level by the expiration date. So, instead, I purchased a small position outright at the end of November and have some unrealized losses for now. Nevertheless, it is always important to remain vigilant in doing homework on the stocks one owns in their portfolio to see what else is happening.

There has been a broad selloff in tech stocks since December started, but Facebook has weathered the storm as the stock is flat in the last month. Investors have been selling off the tech plays because they are not considered to be a part of the Trump cohort of stocks which should thrive for the next four years. Trump has clearly stated his presidency will revolve around infrastructure spend, and because Facebook has nothing to do with infrastructure, investors have been using it as a source of funds to purchase the Trump related infrastructure plays.

Speaking of the presidency, the company has been the poster child of what was allegedly taking place during the run up to Election Day concerning fake news items. Because this topic has been hot and heavy since the election, the company has been looking to collect publisher content by directly contacting media and entertainment companies to be able to feature some of their content. No deals have been announced yet, but one can fathom the idea that Facebook may have to pay for the content which can reduce the company’s margins in the near future to be able to rid itself of the perception that it just publishes fake news often.

Because Facebook is the world’s largest social media outlet and has been growing like a weed over the last few years, it has been difficult to moderate some of the content its users post. Hence, why it has teamed up with other social media giants like YouTube and Twitter (NYSE:TWTR) to ramp up efforts for generating a common database that will filter out terrorist related content from their sites. These efforts will continue to drain resources, both capital and human, from other growth related projects, but this is probably a necessary thing despite perhaps taking on the freedom of speech head-on by removing content.

The stock of Facebook has enjoyed a great increase in value over the past couple of years as it has moved up 46.7% in that time frame. However, one thing that concerns me is the news about this Snap IPO coming soon and perhaps that investors will use their profits from Facebook to get a piece of the action in Snap. But because I believe investors may have taken their Facebook proceeds recently to push them into the Trump related infrastructure stocks and bank stocks, I believe that they will probably be rotating them from the bank stocks and into the Snap IPO. The IPO is not slated to happen till about late first quarter so I wouldn’t anticipate any withdrawals from Facebook or the infrastructure and bank stocks till a couple of weeks before the actual IPO date is set.

As virtual reality headsets begin to make way into the homes of many Americans during the holiday season, the big players in the industry have decided that it would be beneficial to create a consortium to be able to dictate VR best practices. This is a good first step for companies like Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) and Facebook as law makers have yet to tackle the VR world with their policies. By getting ahead of the curve, the consortium should be able to show policy makers where the industry has started and what practices have been put into place to be able to provide a safe and enjoyable VR community.

Essentially, Facebook is an advertising company and along which makes nearly a third of its annual revenues during the fourth quarter because this is when the advertisers are spending the heaviest. This year in specific is going to be a big fourth quarter for Facebook because on top of the holiday shopping season there was also the election season which should have helped boost ad revenues. Analysts are currently projecting that revenue will come in at around $8.5B with a low of $8.1B and high of $8.9B. For comparison purposes, last year the company earned “just” $5.8B per Yahoo Finance.

Don’t forget this is still the company that owns WhatsApp, Instagram, and Facebook Messenger which it has yet to turn on the spigot in terms of revenue. This is definitely a company which has a lot of assets that need to be monetized at a certain point in time. Now may be the right time to turn on that spigot as the stock has begun to flat line, and if the company does turn on that spigot, I believe it can be one of the best stocks to own in 2017.

I actually initiated my position in Facebook in late November and have been pretty upset with the purchase thus far. I will only be purchasing shares if they are below $111 because I believe that is where Facebook offers additional value. I’ve selected $111 because it is the average of the 52-week range.

I swapped out of Priceline (NASDAQ:PCLN) for Facebook during the 2016 fourth quarter portfolio change-out because I ended up turning a profit in the name (32.7%, or 33% annualized) and wanted to lock in those gains. Since the swap, I have not lost out on much, as Priceline and Facebook have performed about the same. For now, here is a chart to compare how Facebook and Priceline have done against each other and the S&P 500 since I swapped the names.


Click to enlarge

When it is all said and done, it matters what the stock has done in an investor’s portfolio. For me, Facebook is one of my larger positions and has not been doing well, as I’m down 5.3% on the name while the position occupies roughly 8.6% of my portfolio. I will make purchases in the stock only if it is below $111.

I own Facebook for the growth portion of my portfolio, and I will continue to hold onto the stock for now. My portfolio is up 9.8% since inception, while the S&P 500 is up 7.7%. Below is a quick glance at my portfolio and how each position is performing. Thanks for reading, and I look forward to your comments.

Company

Ticker

% change incl. DIV

% of Portfolio

Electronic Arts Inc.

(NASDAQ:EA)

5.17%

3.72%

AbbVie Inc.

(NYSE:ABBV)

4.84%

4.08%

Eaton Vance Corp

(NYSE:EV)

3.27%

4.90%

The Home Depot, Inc.

(NYSE:HD)

2.98%

4.89%

General Electric Company

(NYSE:GE)

1.01%

4.79%

Starbucks Corporation

(NASDAQ:SBUX)

-3.86%

4.56%

V.F. Corporation

(NYSE:VFC)

-4.78%

6.17%

Facebook, Inc.

-5.26%

8.59%

Diageo plc

(NYSE:DEO)

-5.37%

8.40%

Skyworks Solutions Inc.

(NASDAQ:SWKS)

-6.42%

8.93%

Gilead Sciences Inc.

(NASDAQ:GILD)

-12.45%

19.97%

Silver Wheaton Corp.

(NYSE:SLW)

-16.43%

5.79%

Cash

$

15.21%

Click to enlarge

Disclaimer: This article is in no way a recommendation to buy or sell any stock mentioned. This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Disclosure: I am/we are long FB.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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