BROKERS’ NOTES: Buy Meta, sell the meme stonks

Bright Khumalo, portfolio manager at Vestact 

Buy: Meta

Over the past three weeks we’ve seen some of our favourite names — Amazon, Google, Meta, even Nike — down about 30% year to date, on average. But in the case of Facebook it’s the same ultra-profitable business it was two years ago, and it has also increased its R&D efforts to find the next growth spurt. You’ve seen other highly popular businesses — for example,  Beyond Meat — get smashed. But Beyond Meat has gross margins of 0.2% and a business that is making profits and a business that isn’t, aren’t to be traded in the same way. We can draw comparisons for tech companies that were left for dead — think of Apple, in 2016. Then Apple was trading on a p:e of less than 8,  like a beaten-down oil stock. But you couldn’t compare Apple to an oil stock: there was no slowdown in demand for any of their gadgets. A slowdown in growth is not negative growth. You fast-forward a few years and you’ve enjoyed five times returns and a fat dividend in between. So, Meta, for example, is arguably cheaper than a cigarette stock, which makes no sense whatsoever.

Sell: The meme stonks  

The sell list is an easy one — there is a whole host of meme stonks. When you talk about growth companies they promise profits in the future. These don’t  promise future profits but future revenues — big difference. A perfect example is Virgin Galactic (or Palantir, Tilray, Nokia, Robinhood and Blackberry). If I were a short seller I’d still be shorting them because there are still no revenues.