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Facebook: Stellar Growth in Social Media

06/16/2020 5:00 am EST

Focus: TECHNOLOGY

Jim Woods

Editor, Successful Investing, Intelligence Report

Social media bellwether Facebook (FB) has been a juggernaut of late, with the stock spiking about 13% year to date and more than 58% since falling to its most recent low on March 16, observes Jim Woods, editor of Intelligence Report.

The surge in FB shares has come despite falling ad revenue. Does this bother me? It would if circumstances were normal, but COVID-19 shutdowns are by no means normal.

The fact is that the shelter-in-place measures have led to record social media usage, but because of the contraction in the economy, there’s been a major contraction in advertising spending in all media -- and social media is no exception. 

Yet the decrease in revenue is easily explained away by the fact that many businesses that advertise on these platforms also have seen a virtual shutdown in their respective revenue streams. So, one of the first things to go is social media ad buys -- and after all, if you’re a physical business, who can even come out to your business anyway?

I suspect that once the economy gets back to “normal,” social media companies will be the first to see ad revenue come back. The reason is simple — social media advertising is effective, targeted and measurable. Think about those so-called “direct response” ads. 

As anyone who frequents FB or other social media platforms such as YouTube or Twitter knows, users are bombarded by these ads. And perhaps uncomfortably at times, these ads provide us with a mirror focused on what we like and what we likely need, which is part of the reason their ad algorithms are so eerily successful.

So, the story here for FB is great, but so too are fundamental and technical factors that make this stock a great addition to our tactical trends portfolio.

On the earnings growth front, FB’s most-recent quarter of 101% year-over-year EPS growth is stellar, and one reason why the company is in the top 4% of all public companies in terms of current and annual earnings growth.

Technically, its 38.5% gain over the past 52 weeks has vaulted it into the top 11% of all stocks in terms of relative price strength. Given the confluence of positives here with FB, today I want you to buy Facebook at market, with a protective stop set at $197.00.

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