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The Facebook Effect: Time to Buy Social Media Stocks, Says Baker

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Last week Facebook (FB) changed the game for social media as an investment. Before FB's boffo earnings report, the rap on the social media space was that they were generally a nice idea but would never be able to make much money, especially once users migrated from desktops to smartphones.

One huge quarter later and it's time to rethink the entire concept. It turns out there actually is money to be made in those little on-line social clubs. The hard part is distinguishing between glorious Facebook and grizzly Zynga (ZNGA).

Related: Facebook Shares Soar After Earnings Blow Away the Bears

Simon Baker, CEO of Baker Avenue Asset Management, says investors should be ready to join the social media club.

"Ad sales are going up, user engagement even in the younger people is going up, margins are going up," he says. "I think it's pretty positive. The two names we like in the space are Yelp (YELP) and LinkedIn (LNKD)."

Lumping the two companies together demonstrates how wide a brush is used when people think of social media. Much like all online companies used to be referred to as dot-coms, every company that takes advantage of the collective nature of the online world is a social media company.

Yelp is in the business of aggregating reviews to help travelers find hip places to eat, dine or stay. Baker notes the company is moving into more cities and innovating in their unique space. Do other companies offer online reviews? Of course. Just not as well.

LinkedIn is a business networking company, obviously. The company is the go-to site for people looking for work and employers seeking internet savvy workers. "I just hired two people using LinkedIn job search. It's brilliant, I love it. It's been really, really effective," says Baker.

The big change in the wake of Facebook is that the stocks winning don't rely on takeovers. There are constant mummers about Yelp in particular being an M&A target, but the company is obviously more than capable of going it alone.

The bottom line is this: Social media went from fad to industry when Facebook cracked the code on mobile. Investors can choose to opt out of the party but betting against the companies is an expensive form of anti-social behavior.

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