The Facebook haters are getting more vocal, but that is not swaying Eric Steiman, manager of the Undervalued Opportunities portfolio at Covestor. He’s staying long the stock and still believes it has upside as a long-term investment.
“A lot of writers are bashing it now, but this recent move is just the start I believe,” Steiman says “It’s the ‘a-ha’ moment when people are realizing that Facebook (FB) is indeed a real company. That’s why it will remain one of my top portfolio holdings.”
Early in January, Steiman called Facebook one of his top 5 stocks for 2013. It is currently his top holding, making up about 20% of his portfolio. While some of his tech sector picks have not panned out including in March short trade of Apple (AAPL) and buys of Zynga (ZNGA) and Pandora (P) this summer, his biggest bet — Facebook — has aided his returns.
It appears popular now to be a Facebook doubter after the stock rose 60% in the 30-day period ended August 6. Stock commentators are starting to publicly wonder how long its shares can continue to climb at that pace. As they point out, Facebook is now trading at more than 170 times trailing earnings. It’s now more than three times the value of online rival Yahoo — even though Yahoo earned more than Facebook in the past 12 months.
“All of this euphoria, it seems, is based on one measly quarter,” says David Weidner, long-time columnist at MarketWatch. Yes, the company’s revenue rose 62% in the second-quarter, driven by growth in mobile advertising. But Weidner says that Facebook still faces “problematic” underlying trends, including slower user growth.
Weidner is hardly alone, mind you. The Motley Fool’s latest Facebook coverage is all about why the stock is poised to fall back. The argument: Facebook has simply run too hard, too fast. Meanwhile, every attempt the company makes to make money from its 1.5 billion users is coming at the detriment of the overall user experience.
NYU Professor Aswath Damodaran also weighed in, recently calling Facebook shares “richly priced” in a CNBC interview. He says that he would be a seller at current prices.
But is Facebook really still an “undervalued opportunity?” “It’s no longer the cheapest stock in the world, I admit,” Steiman says. He says that he may trim some of his position in coming months.
“But I am sticking with it, and I think that the valuation of should indeed be rich,” Steiman says. “In my mind, this will become a $150 to $200 billion company over time.”
According to Steiman, Facebook is just beginning to leverage its ability to reach a broad group of Internet users, then help advertisers reach their targeted demographics. He believes that the “the largest social network company ever” still has room to grow.
“Look, if you are in to Facebook for the long term, as I am, there is simply no reason to sell,” Steiman says. “Even at $38, I still think it’s a buy.”
Eric Steiman owns shares of Facebook and Yahoo. All opinions included in this material are as of August 6, 2013 and are subject to change. The opinions and views expressed herein are of the portfolio manager and may differ from other managers, or the firm as a whole. All investments involve risk (the amount of which may vary significantly) and investment recommendations will not always be profitable. Performance should never be the sole consideration when making an investment decision. Past performance does not guarantee future results.
