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A sign is posted in front of Meta headquarters on April 28 2022 in Menlo Park, California. Picture: GETTY IMAGES/JUSTIN SULLIVAN
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.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
BROKERS’ NOTES: Buy Meta, sell the meme stonks
What the smart money is doing
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.
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Published by Arena Holdings and distributed with the Financial Mail on the last Thursday of every month except December and January.