First, I briefly discuss Facebook’s recent price action.
Second, I quickly explore the factors driving uncertainty.
Third, I explain an options trade that appears rational now.
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aprott/iStock via Getty Images The Set Up
I recently explained an investing approach for Palantir ( PLTR ) that appears to be appropriate for Facebook ( FB ) investors.
With PLTR, the challenge has been getting the right price in this bull market. Most stocks are elevated. In any event, we do have better buying opportunity for FB’s common equity right now. Here’s why: Data by YCharts That’s in one month. And, in the last three months, FB is down about 15%, before adding in the 4-5% drop today. Perhaps that’s good enough. Buying FB directly could be quite rational. ( I opened a small starter position today .)
You would be in the company of at least six Seeking Alpha authors who are bullish, and ready to pounce. This is in the span of less than 24 hours: Wall Street is quite bullish with a price target of $416. In fact, 43 analysts are bullish or very bullish, and just two are bearish or very bearish.
Furthermore, the quants are also super bullish. See for yourself: Source: Seeking Alpha
Now, all of this said, you’ll notice that “Valuation” is a glowing red “D+” and that’s really what gives me pause.
Let’s break that out: Source: Seeking Alpha
Please notice that I’ve drawn two boxes around some of this valuation data. First, the purple box mostly tells me that despite the recent 10-15% decline, FB is still a wee bit overvalued compared to peers, via a Sector comparison. Maybe this is justified because it’s a world class operation, and perhaps not.
Second, you can see that FB is almost entirely “off” from its own 5-year numbers, with respect to valuation. That tells me that FB is slowing down, or at a minimum, there’s friction inside and outside the company. I think most FB investors are aware of all of this friction, which impacts growth: The Market Is Punishing Uncertainty
In any case, I think FB is currently in a weird space right now. While I still think of it as a growth stock, it’s also taken a real beating. FB is floating along as an odd type of value play. I feel that many investors are trying to look through this fog, wondering what it all looks like on the other side.
I feel that Facebook is struggling to see its own future. Two examples:
These are the vibes of uncertainty. And, the market doesn’t like uncertainty, especially if it takes a lot of guessing and money to find the way through.
At this point, investors could simply make the decision to buy and hold. As I’ve already said, that would be a fairly rational approach. But, here, we’ll investigate another approach. Screaming Buy Under $300
In a recent article, I explained how investors could get PLTR for $19.47 or they’d make nearly 16% annualized. It was an options trade, which is what I’m looking at here with FB.Please note, as I said in that PLTR options trading article : As a quick disclaimer, I strongly encourage you to perform your own due diligence about this trade. Do not simply copy and paste anything. Although I’m using the best possible data I can find, markets are very fluid and it’s likely this exact set-up is has already changed – perhaps substantially. Further, options trading inherently carries additional risk. You’ve been warned. Now, back in June 2021, I wrote: Facebook: The PEG Ratio Surprise . In that article, I said: Summarizing all of that, my screaming buy price is $300 . Even at $340 and above, I’m contemplating a small starter position. FB is definitely not a sell. With FB at around $315 right now, can we get a screaming buy? That is, can we get FB for less than $300? The answer is “maybe” if we use options. Selling FB Puts The trade set up is simple: Source: TD AmeritradeYou can see that we’re looking at FB. Also, the expiration date is December 17th, 2021. That’s roughly two months from now. And, we’ve got a strike price of $305, with a bid of $10.30 and ask of $10.40, as I’m writing this. I’m going to assume that we could split the difference and sell at $10.35 per FB contract, for this trade.As another […]