Subscribe to Money Morning get daily headlines subscribe now! Money Morning Private Briefing today's private briefing Access Your Profit Alerts

Investing in Facebook Stock? Keep an Eye on Dec. 12

Facebook stock (Nasdaq: FB) investors are getting an early holiday present.

That's because on Dec. 12, shares of the world's largest social networking company will be added to the Nasdaq 100 Index.

Facebook will have some very good company in the index, joining tech behemoths Apple Inc. (Nasdaq: AAPL), Google Inc. (Nasdaq: GOOG), and Microsoft Corp. (Nasdaq: MSFT). It'll rank 13th by market value ($60 billion).

Snagging a spot in the coveted index, a compilation of the 100 most valuable non-financial stocks traded on the Nasdaq, is the latest in a string of welcome news for Facebook shareholders, especially those bruised in its initial public offering fiasco on May 18.

And the news couldn't have come at a better time for shareholders.

Here's why.

The Good News for Facebook Stock Investors

Scores of major mutual funds that allocate funds primarily or solely to a specific index or sector and/or exchange-traded funds (as detailed in their prospectus), are frequent and prominent investors in the Nasdaq 100.

So, those funds – fans of Facebook stock or not – must add the security to their stash of holdings.

As a result, trading in Facebook stock will see a pop and its price may also be goosed.

More than $49.4 billion was invested in Nasdaq 100 funds or related products last year, according to the totally electronic exchange, USA Today reported.

Rebalancing of the index occurs yearly as the exchange tosses out companies whose value has dipped and no longer warrants a position in the index, replacing the old with more valuable companies.

Sometimes, as in Facebook's case, the Nasdaq opens the door early due to an exit of a member. In this case it's the exodus of Infosys (Nasdaq ADR: INFY), which is ditching the Nasdaq for the rival NYSE.

But, investors be warned – this phenomenon could very well be short lived and temporary. After all-the Nasdaq 100 invite is a one-time deal.

Facebook Stock Not Out of the Woods

Despite the recent spate of better news for Facebook, which has been struggling to gain traction and save face after its fabled IPO was a flop, the stock is not out the woods by any means.

Rising from a low of around $17.75 in September, and currently trading at $27.48, shares remain well below their debut price of $38 or peak of $43 reached on first day of trading. Plus, Facebook's present valuation of $60 billion is nearly half the $100 billion valuation it carried when it became a public company.

Weighing on the stock has been the torrent of shares that have flooded the market over the last few months due to the expiration of lockups, which has allowed many insiders to cash in. And many have done just that.

Another concern is how Facebook is monetizing its massive 1 billion user base.

As more and more members are accessing the site exclusively via mobile devices, an arena where Facebook fails to make much revenue, the social network giant, late to the game, continues to play catch-up.

Facebook has been adding new features, is making headway in mobile, and by all appearances is enjoying an upward trend.

But that's the thing with trends. They're fleeting.

Waving a bright red flag is Facebook stock's short position, which is growing in spite of the better news, recent upgrades and winding down of the lockup expirations.

According to data by the Nasdaq National Market, on Nov. 15 Facebook's short position rose to more than 95 million shares from 87 million, an increase of more than 7 million from Oct. 31, a staggering number of shorted shares.

So plenty of market participants remain wary, if not downright bearish, on Facebook stock – but a short-term bump looks to be on the way.

Related Articles and News:

Join the conversation. Click here to jump to comments…

Leave a Reply

Your email address will not be published. Required fields are marked *

Some HTML is OK