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Why Facebook’s Stock Seems Indestructible

Facebook founder Mark Zuckerberg speaks at Georgetown University Washington, DC on October 17, 2019.

For more than two years, Facebook has found itself at the center of a string of controversies, from privacy and data concerns to accusations of democracy-destroying behavior and antitrust investigations from the Federal Trade Commission. CEO Mark Zuckerberg has been called to testify in Washington not once but twice over his company’s policies. For most companies, a string of shaky headlines might affect the company’s outlook.

For Facebook, the company’s stock continues to rise.

After climbing over 50% last year, Facebook’s stock is already up over 5% so far in 2020. Despite a number of looming investigations from U.S. government agencies over competition and antitrust issues, the stock has hit several new all-time highs in recent weeks. The company saw its market cap rise by more than $200 billion in 2019, and is now worth nearly $630 billion today.

Facebook appears to be making a comeback from its historic slump in mid-2018, when the company unexpectedly warned of slower user and sales growth. A day after that announcement, the stock plunged 20%. The forecast of slowing profits also came amid wider concerns over data privacy. Facebook for months faced backlash over its handling of users’ privacy, as well as its role in not stopping the spread of “fake news.” Among mounting criticism, Facebook was lambasted for damaging democracy after British consulting firm Cambridge Analytica was able to leverage personal user data from millions for its political advertising strategies.The criticism caused Facebook stock to undergo an extended sell-off during the rest of 2018, where it lost nearly half of its overall market value.

The stock largely recovered in the first half of 2019, but plunged again nearly 10% in May, amid calls for the company’s breakup. The Federal Trade Commission then opened an antitrust probe into the social media giant in June, with many Wall Street analysts predicting that growing calls for regulation would be damaging for the company. Facebook was eventually slapped with a $5 billion fine from the FTC, its largest penalty in history, for violating consumers’ privacy.

Facebook also faced criticism over the launch of its new digital currency, Libra, last year. And as the 2020 U.S. election draws nearer, the world’s largest social media network is under intense pressure to adjust its policies on fake news and political advertising. But Facebook recently confirmed that it won’t change its policy of allowing false political advertisements on its platform. That contrasts with other social media companies, like Twitter, which banned all political ads from its site last October. What’s more, last September, 47 state attorneys general announced an investigation into Facebook for antitrust violations, sending the stock down 4%.

Despite the recent criticism and increased calls for regulation looming on the horizon, Facebook stock’s recent momentum and new record highs may signal that investors are so far unconcerned by the regulatory fears. Indeed, Wall Street is predicting a big year ahead for Facebook.

Facebook for months faced criticism and backlash over its handling of users’ privacy, as well as its role in the spread of fake news.

The company has in recent quarters continued to grow revenue by adding news users to its core platform as well as to its family of apps, like Instagram, Messenger and WhatsApp. Optimism is reportedly growing over Facebook’s ability to monetize those apps, like they have been with Instagram through video ads and commerce.

The stock’s most recent rally came on the back of stronger-than-expected earnings in the third quarter. Revenue growth actually accelerated in 2019, with the company reporting a year-over-year revenue growth rate of 26% in the first quarter, 28% in the second quarter and 29% in the third quarter. Even as Facebook tries to improve its reputation, it continues to dominate the digital advertising market: Businesses continue to use Facebook’s advertising platform, with analysts on average expecting its revenue from ads to increase 26% in 2019, according to Refinitiv.

In a recent note, Deutsche Bank analysts predicted “renewed strength in the core Facebook app” in 2020, thanks to company initiatives like reworking the core Newsfeed, rolling out Stories, scaling Marketplace and building its Groups product. Bank of America analysts, on the other hand, recently argued that Facebook’s Messenger and WhatsApp offerings are still undervalued and not fully reflected in the stock price, which they think can rise 20% higher. “While the firm remains under scrutiny and faces regulatory risks, it continues to execute exceptionally well,” writes Morningstar analyst Ali Mogharabi in his analysis of Facebook’s latest earnings report.

Even as Facebook tries to improve its reputation, it continues to dominate the digital advertising market.

Despite facing another year of criticism for allowing fake news on Facebook, Zuckerberg said in an annual blog post that “One of the big questions for the next decade is: how should we govern the large new digital communities that the internet has enabled?” The Facebook CEO, who is now worth almost $82 billion according to Forbes’ estimates, suggested that the best way to address this would be “by establishing new ways for communities to govern themselves.”

Since Trump’s inauguration day, Zuckerberg’s net worth has increased by an estimated $27.8 billion—the fifth-most of anyone in the world and the third-most of any American over that period, according to Forbes’ calculations.

Facebook’s fourth-quarter earnings and full-year results for 2019, which will be reported after the market closes on January 29, are a key indicator of whether the company can continue its momentum in 2020. But if 2019 was anything to go by, turbulent political times for Facebook may not have much effect on the ability of its stock to climb higher.

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I am a New York—based reporter for Forbes, covering breaking news—with a focus on financial topics. Previously, I’ve reported at Money Magazine, The Villager NYC, and The East Hampton Star. I graduated from the University of St Andrews in 2018, majoring in International Relations and Modern History. Follow me on Twitter @skleb1234 or email me at sklebnikov@forbes.com

Source: Why Facebook’s Stock Seems Indestructible

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These 4 Low P/E Stocks Trade Below Book And Pay Dividends

US dollar rolled up in macro shot

Despite the highest stock market prices in history and Presidential tweets proclaiming the wonder of the economy, it’s still possible to identify equities coming in at under book value and with price/earnings ratios actually somewhat close to earth.

Right now, the p/e of the S&P 500 stands at 24.13 and the Schiller p/e sits at 30.88. The price of the index is 3.6 times book value.

The price/earnings ratio of the NASDAQ Composite index is 34.16. The NASDAQ is trading at 3.3 times its book value.

What if — under these conditions of over valuation — you could find stocks trading with price/earnings ratios of below 15 and at less than their book value? You know, like Warren Buffett used to do it.

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Instead of falling in love with Tesla, now trading with a forward p/e of 75, at 12 times book and with more debt then equity, what if you could consider old-school valuation techniques and identify what they used to call “cheap.”

Are there still such things as actual value stocks?

Here are 4 possible candidates:

WestRock is a New York Stock Exchange-listed stock in the “packaging solutions” business with headquarters in Atlanta.

The stock trades with a price/earnings ratio of 12.65 and at a 7% discount to its book value. The record of earnings is quite good for this year and looks in the green over the past 5 years. Investors receive a fat 4.68% dividend. That long-term debt exceeds shareholder equity is a concern — however, the current ratio is positive.

Metlife is the brand name life insurance firm that’s been around for 145 years. Based in New York, the stock trades on the NYSE.

The price/earnings ratio of Metlife is an amazingly low 6.85. You can buy shares at the current price for 70% of the company’s book value. Shareholder equity is greater than long-term debt. The dividend payment comes to 3.43%. With an average daily volume of 5.3 million shares, no need to worry much about liquidity.

AXA Equitable Holdings is an NYSE-listed insurance brokerage founded in 1859 and headquartered in New York.

The p/e is 14.73 and it trades at an 18% discount to its book value. Long-term debt is less than total shareholder equity. Investors receive a dividend of 2.41%. Earnings this year are excellent and the 5-year track record of earnings is very good.

Amplify Energy is an independent oil and gas company that trades on the New York Stock Exchange.

This one requires closer inspection than those listed above. With a price/earnings ratio of 6.46 and trading at just half its book value, the stock is definitely “cheap.” One concern is that long-term debt exceeds shareholder equity. Also, it’s odd that the dividend yield is 11% — how likely can that high of a payout be sustained? Meantime, Amplify’s earnings this year are excellent and the 5-year record is good. Average daily volume is relatively low at just 248,000 shares.

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Stats courtesy of FinViz.com.

I do not hold positions in these investments. No recommendations are made one way or the other.  If you’re an investor, you’d want to look much deeper into each of these situations. You can lose money trading or investing in stocks and other instruments. Always do your own independent research, due diligence and seek professional advice from a licensed investment advisor.

Follow me on Twitter or LinkedIn.

My Marketocracy work is profiled in The Warren Buffetts Next Door: The World’s Greatest Investors You’ve Never Heard Of by Forbes Investments Editor Matt Schifrin. I’m a 1972 graduate of the University of North Carolina

Source: These 4 Low P/E Stocks Trade Below Book And Pay Dividends

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Stock Market Looking Up Amid Some Trade-Related Optimism

Key Takeaways:

  • Fed’s Bullard says U.S. manufacturing appears to be in recession
  • China lowers its benchmark lending rate
  • U.S., China set to conclude second day of lower-level talks today

Welcome to quadruple witching day. It happens every quarter on the day when futures and options on indices and stocks all expire on the same day.

Maybe it’s not as ominous as its name might suggest, but these remain days when investors might want to exercise special care as there could be some heightened volatility as people unwind baskets of stocks or futures.

On Wall Street, investors this morning seem to be a bit upbeat, heartened by developments on the trade front and by yet another major economy cutting interest rates.

Today In: Money

China cut its one-year lending rate, joining the Federal Reserve and the European Central Bank in dovish steps designed to help stimulate economies by reducing borrowing costs. The moves come amid rising worries about global economic growth as the trade war between the United States and China drags on. (See more below.)

On the trade front, China and the United States are scheduled today to conclude two-day negotiations that began yesterday, seemingly with the aim of paving the way for higher level discussions next month.

The discussions come as there has been a bit of a thaw recently in the chilly trade relationship between the world’s two largest economies. Among recent developments, the Trump administration has excluded hundreds of Chinese items from a 25% tariff.

Resistance Near Record Highs

We’ve been talking for a while about how the U.S.-China trade war seems to be creating a cap that the stock market may not be able to meaningfully breach until the dispute between the world’s two largest economies comes to some sort of definitive conclusion.

That narrative seemed to be in play Thursday with stocks near all-time highs but losing momentum throughout the day. The S&P 500 Index (SPX) closed above 3000 after making it above 3,020. But without a catalyst to push stocks into record territory, this area between 3000 and the all-time high of 3027.98 looks to be an area of resistance.

True, the Fed didn’t give market participants much to get really excited about this week when the central bank delivered an as-expected rate cut. But it seems like the unresolved trade issue could be the bigger weight here.

While optimism around the two-day negotiations may have helped boost the market early Thursday, that sentiment may have been tempered by comments from a White House adviser in a media report that the United States could escalate the trade conflict if a deal isn’t reached soon. Meanwhile, a tweet from the editor of the official newspaper of the Communist Party of China said that “China is not as anxious to reach a deal as the U.S. side thought.”

Reading the Fed Tea Leaves

With mixed signals on the trade front, the market was left to scratch its head about what the Fed might do after its latest rate cut—not exactly a recipe for a rip-roaring day of gains in equities.

It’s arguable that the Fed has left the market in a holding pattern as investors seem unconvinced that the current central bank trajectory is as pro-growth as they want it to be.

But even though there seems to be wariness about the Fed’s language when it comes to interest rates, there could be some percolating excitement about a different type of stimulus that the central bank might have up its sleeve.

Still, without clear direction or conviction, investors seem to be holding off from making a big rotation into any one style of equities, leaving cyclicals still in play even as market participants may also be eyeing defensive sectors.

Today, investors and traders are likely looking to a slate of Fed speakers to try to gain some clarity on the central bank’s thinking. Additionally, Federal Reserve Bank of St. Louis President James Bullard posted a note explaining his dissent in the Fed’s recent decision to cut its key rate by 25 basis points. Bullard had wanted a 50-basis-point cut, citing expected slowing U.S. economic growth, trade policy uncertainty, rising recession probability estimates, and a U.S. manufacturing sector that “already appears in recession.”

Next week could offer the market further direction on the economy as investors and traders are scheduled to see data releases on consumer confidence and sentiment, new home sales, personal spending, and durable goods orders, as well as the government’s third estimate of gross domestic product.

A Firming Foundation: It’s been a pretty good week for housing market data. Yesterday, figures on existing home sales for August came in at a seasonally adjusted annual rate of 5.49 million. That was up from 5.42 million in July and beat a Briefing.com consensus of 5.36 million. That came after figures showing August housing starts and building permits came in above expectations. Briefing.com pointed out that lower mortgage rates were behind the strength in existing home sales. “The August sales strength cut the inventory of homes for sale,” Briefing.com said. “That will keep upward pressure on home prices, which in turn is likely going to necessitate the need for mortgage rates to stay down to drive ongoing sales growth.”

Will King Consumer’s Crown Stay Shiny? With the health of the U.S. consumer one of the top issues on the minds of investors and traders along with the trade war and Brexit, market participants are likely to be eyeing next week’s reports on consumer confidence and consumer sentiment with some interest. From the data we’ve been seeing, the U.S. consumer has been helping the economy continue to power along. GDP isn’t going gangbusters, but it’s still pretty solid, and the consumer has a lot to do with that. This could be a comforting sign to investors even as the trade war continues to drag on. If prices at the retail level move up due to tariffs and other cost pressures, consumer resilience could help cushion the U.S. economy.

Global Economic Outlook Darkens: While the U.S. consumer has been one of the backstops to the domestic economy, worries about the global economy in the face of the continued trade war are ratcheting up. The OECD is projecting that the global economy will expand by 2.9% this year and 3% next year, which would be the weakest annual growth rates since the financial crisis. And downside risks continue to mount, the group said Thursday. “Escalating trade conflicts are taking an increasing toll on confidence and investment, adding to policy uncertainty, aggravating risks in financial markets, and endangering already weak growth prospects worldwide,” the OECD said.

TD Ameritrade® commentary for educational purposes only. Member SIPC.

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I am Chief Market Strategist for TD Ameritrade and began my career as a Chicago Board Options Exchange market maker, trading primarily in the S&P 100 and S&P 500 pits. I’ve also worked for ING Bank, Blue Capital and was Managing Director of Option Trading for Van Der Moolen, USA. In 2006, I joined the thinkorswim Group, which was eventually acquired by TD Ameritrade. I am a 30-year trading veteran and a regular CNBC guest, as well as a member of the Board of Directors at NYSE ARCA and a member of the Arbitration Committee at the CBOE. My licenses include the 3, 4, 7, 24 and 66.

Source: Stock Market Looking Up Amid Some Trade-Related Optimism

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It was a big week for the bulls as optimism for a new trade deal gained steam. With CNBC’s Melissa Lee and the Fast Money traders, Tim Seymour, Brian Kelly, Dan Nathan and Guy Adami.

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