Editor's Note: Normally this insight is reserved for paid-up members of Bill Patalon's Private Briefing service, but the long-term profit opportunity with Facebook is so big right now, he wanted to give everyone this inside look. In the following analysis, Bill asked three industry experts for their views on Facebook's performance and potential. The result is better than any stock coverage you'll find available today. Take a look...
"The three men I admire most."
- Don McLean, "American Pie"
In a report back in February 2014, Money Morning Capital Wave Strategist Shah Gilani put a "Strong Buy" on Facebook Inc. (Nasdaq: FB). He said the social networker's shares "will never be this cheap again."
Shah was right.
Facebook stock has zoomed 57% since then.
That means that a stock that was trading at $68.59 when Shah recommended it has vaulted to better than $108 a share.
But I can guess what you're thinking right now...
You want to know where the stock is going to go from here.
And you want us to share the reasoning behind our prediction.
I hear what you're saying...
And today I'm going to give you what you seek.
I'm going to tell you what we're predicting for Facebook.
And you're going to like what I have to say...
Famed investor - and best-selling author - Peter Lynch used to counsel folks to "invest in what you know."
That's great advice.
Especially because of where I work.
Here at Money Map Press, I deal with some of the smartest folks in the worlds of investing, finance, technology, and marketing.
And I went to three of my colleagues about Facebook. When it comes to this company - its performance and its potential - you can view these experts as "The Three Wise Men."
- Shah Gilani, a retired hedge-fund manager who runs our Short-Side Fortunes trading service.
- Michael A. Robinson, our resident tech guru who edits our Radical Technology Profits advisory.
- And Bret Holmes, a visionary e-commerce expert and a close colleague of mine who's the Executive Director here at Money Map Press.
This is a great cross-section of folks to quiz about Facebook's prospects: Shah looks at companies from purely an investment perspective, Michael analyzes them from a strategic technology point of view, and Bret is an actual e-commerce and e-marketing practitioner, meaning he's one of the commercial-side customers whose ad dollars Facebook is seeking.
In other words, if we're embracing the Lynchian strategy of "knowing" what we're investing in... these are three gents who can help us "know" Facebook.
Call it a stock-analysis "triple threat."
Let's look at what each of these experts told me about this company... and its stock.
And we'll start by explaining why this topic is so timely.
Facebook's Powerful Performance
In a report released Nov. 4, Facebook reported third-quarter revenue and profits that trounced Wall Street estimates - and demonstrated that the social-networking leader will continue to see torrid growth.
Net income soared to $896 million from the year-earlier $806 million - and way above the $776.5 million analysts had expected. Earnings per share came in at $0.57 - a nickel ahead of the consensus.
The top-line performance was the real stunner.
Revenue rose more than expected - 41% to $4.5 billion, from $3.2 billion in the same period a year earlier.
There were some concerns about rising costs - which soared a higher than anticipated 68%. But this reflects Facebook's heavy spending on such over-the-horizon projects as artificial intelligence (AI), virtual reality (VR), and Internet access in emerging markets.
But savvy investors know that CEO Mark Zuckerberg has a true "vision" for the company he founded - and has a record of making splashy investments that have big future payoffs.
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And concerns about expenses were more than offset by the traction Facebook is getting in its key advertising markets.
Facebook said it had 2.5 million advertisers in September - up a hefty 25% since February.
This company "is your first port of call if you're a digital advertiser and if you have money to spend," Brian Weiser, an analyst with Pivotal Research, told The Wall Street Journal.
The "use" numbers just keep improving, too. According to Facebook, 1.55 billion people tap the social network at least once a month, up from 1.49 billion in the second quarter. In September, roughly 1.01 billion people checked the social network at least once a day.
While North America and Europe still deliver the bulk of Facebook's revenue (average revenue per user in the United States and Canada jumped 42% to $10.49, three times the global average of $2.97, which advanced 24%), most of the new users are coming from elsewhere in the world.
And that bodes well for the future of the company long term.
A View on Facebook Stock from a Former "Hedgie"
Facebook isn't the first high-profile tech winner Shah Gilani has brought us. In the July 10, 2013, special report "What Our Experts Predict for the Year's Second Half," Shah said to buy both Apple Inc. (Nasdaq: AAPL) and Microsoft Corp. (Nasdaq: MSFT).
"Buy solid, globally diversified companies with yield... and add to them at lower levels," Shah told us in that report. "Microsoft... and Apple... are two examples of decent dividend-paying stocks that have tons of cash that will yield them more income if rates rise. The two of them are long overdue to shake things up, and I believe they will."
Talk about being prescient.
Microsoft announced a major restructuring just days after Shah shared his thoughts with me. Not long after that, longtime CEO Steven Ballmer announced plans to retire (he was succeeded by Satya Nadella, who is clearly intent on "reforming" the software giant).
Microsoft has surged nearly 57% since then.
And Shah's Apple call was even more dramatic.
The sentiment on Apple at the time was about as sour as could be. The consensus was that Apple's growth phase was over, meaning the yearly gains to come would be tepid and of the single-digit variety.
Shah knew differently, which is why he included Apple on his cash-rich company "Buy" list.
The market would ultimately embrace his bullish view.
Just weeks after Shah issued his "Buy" on Apple, activist investor Carl Icahn turned his activist gunsight on the iDevice maker and its CEO, Tim Cook. The one-time corporate raider demanded that Apple put much of its $170 billion cash hoard to work for shareholders and pushed for massive buybacks and dividend payouts.
Shah termed it the "Icahn Hug" and told us it would ignite a big rally in Apple's shares.
It did: Apple's shares soared as much as 125%.
Shah's not a "one and done" kind of guy when it comes to stock recommendations. As Microsoft and Apple surged, he re-recommended the shares several times. Indeed, when Microsoft pulled back, Shah predicted a rebound - and that prediction has come true, too.
Now the man who told you to buy Facebook stock is telling you that it's okay to buy more - even at this price.
"Bill, I love it more every day," Shah told me last Wednesday afternoon. "This is a company with great quarterly numbers. I'm not at all concerned at the 68% rise in costs and expenses: The management team is clearly investing to build a more expansive company - one that's going to make much more money than it does now."
Shah's an unabashed admirer of Zuckerberg. And he believes the investments the company is making - in VR headset Oculus Rift, in instant-message service WhatsApp, and in photo-sharing service Instagram - will help bring windfall profits.
"This is flat-out a stock you want to own for the long haul," Shah said.
Now let's next see what our resident tech expert says about this profit play...
A Very Big FB Target Price
Michael Robinson says Facebook is a "must have" tech stock - in any portfolio.
And the profit potential is huge.
"I think these guys are going to go to $250 in the next five years," Michael said yesterday. "And by saying 'I think,' what I'm saying is that it's a foregone conclusion. These guys - led by Zuckerberg - have been the surprise hit of the Silicon Valley C-level executives. Although he's not always able to articulate it to investors, Zuckerberg is a true visionary - I mean, the story goes that he bought Oculus Rift after trying the headset for only two hours."
In other words, we're talking about a predicted 129% gain from here - not bad for a stock with a $292 billion market cap.
Michael says he has no problem with the reported jump in expenses: He views that as a true investment that will pay huge dividends down the road.
For now, Michael said three key data points caught his eye.
First, spending on digital ads is projected to grow 18% to $170.2 billion this year, says researcher eMarketer.com.
Second, the same researcher said Facebook will win 9.6% of this spending - up from 8% a year ago.
Finally, RBC Capital Markets reported that 61% of marketers surveyed in September said they plan to spend more on Facebook ads next year.
"So here we have a situation where the market is growing, and Facebook is increasing its market share - and is raising prices as it does so," Michael told me. "You just don't find opportunities like this... for investments."
The growth Facebook is seeing overseas is a healthy sign, too, he said.
Said Michael: "In some parts of the world, Facebook is the Internet."
It's a revolution of sorts, and Facebook is the leader.
"This is insane," Michael said as we concluded our talk. "Why would you not want to own this stock?"
That brings us to Bret Holmes.
Along with myself and founder/Publisher Mike Ward, Bret was one of the first three employees of Money Map Press.
Bret is an innovator in the e-commerce and e-marketing realms - and has a gift for seeing developments and opportunities well ahead of the masses.
He's well known in trading-service circles for a bullish view of Facebook that he presented during an interview - at a point when that company's shares were in the dumper and the Wall Street sell-side set was decidedly bearish on the stock.
When I asked him about Facebook's outlook from here, he was just as emphatic - and just as bullish.
"Bill, let me lay it out straight for your subscribers... because this is truly a great, great story," Bret told me. "As good as these numbers looked - and as excited as everyone seems to be about these results - the fact is that this is a company that really hasn't even started yet. And that's exciting."
That's not hyperbole. True to form, Bret can peer into the future and see what's in store for this company.
And he painted a picture for me... and for you.
"Facebook, itself, is still really its sole advertising client," Bret continued. "Just wait until they supplant Google AdSense as the de facto ad-serving platform for the rest of the world. Facebook will be the largest thing the Internet has ever seen for advertising... and five times bigger than Google has ever been (on the Internet - not in aggregate for all business). Once this happens, Facebook will drive more conversions, deeper spends, and more interaction. They really truly are just getting started."
I asked Bret about the "potholes" - potential miscues - that could cause Facebook to lose momentum... or even skid and crash.
"In my view, the only thing that could sink Facebook is if the company stupidly dips its toe into other markets and tries to compete with Google and Apple on their turf... you know, phones, ISP, and home computers. But if Facebook doesn't do that, you'll want to own this stock for the next 10 years. It will continue to grow the bottom line - guaranteed. It's a juggernaut that will never stop as long as it doesn't shoot itself in the foot with hubris. And I don't believe it will."
There you go... analyses of Facebook from three of the wisest men I know.
Now you know the company, too.
Peter Lynch would be proud.
[Editor's Note: Unless otherwise directed, we recommend investors employ a 25% "trailing stop" on all holdings.]
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- Private Briefing: Facebook: Never This Cheap Again?
- Private Briefing: How Shah's "Courageous Call" Could Give You a 338% Profit
- WND: Don McLean Reveals the Meaning of 'American Pie"
- Private Briefing: The Last Time This Happened, You Pocketed a 44% Profit
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning at Money Map Press.