Investors shouldn’t panic about yesterday’s weakness in mega-cap technology names, but if a sector pullback does actually materialize, then Facebook Inc (NASDAQ:FB) is investors’ best bet to capitalize on the resulting bounce.
That’s according to venerable tech investor Dan Niles. The founder of AlphaOne Capital Partners told CNBC this week that the sell-off is nothing to be concerned about:
Stocks of the FAANG companies — Facebook, Apple, Amazon, Netflix and Google parent company Alphabet — all dropped roughly 1 to 4 percent this week for a combined market cap loss of about $60 billion. What’s more, Facebook, Amazon, Apple and Alphabet marked four of the five biggest drags on the S&P 500.
Despite the combined losses, Niles still recommended buying Facebook, citing the social media giant’s double-digit earnings and revenue gains, among other metrics.
“There’s a big difference between an Amazon at single digit operating margins, and a Facebook at 50 percent operating margins, or a Netflix that has negative 3 cash flow for the next couple years,” Niles said.
Niles notes that given FB’s massive margins and near monopoly in the social media advertising space, the risk-reward there still skews sharply positive. Indeed, even if Facebook’s labor costs rise, its margins will still be higher than anyone else’s in the industry, and there’s still plenty of room to ad raise prices.
Plus, Facebook-owned properties like Instagram and WhatsApp are likely on the precipice of major revenue growth.
Facebook Inc shares fell $0.63 (-0.36%) in premarket trading Friday. Year-to-date, FB has gained 53.46%, versus a 20.15% rise in the benchmark S&P 500 index during the same period.
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