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Why Facebook's rivals are in trouble

Why Facebook's rivals are in trouble

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Why Facebook's rivals are in trouble

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Facebook's having a great year, acquiring WhatsApp for $16 billion and now Oculus for $2 billion, as well as seeing an 18% return on its stock.

However, investors in other social network giants like LinkedIn and Twitter are putting frowny-faced emoticons on their status updates for much of the year. LinkedIn is down 13% since the start of the year while Twitter has tumbled 26%. The Global X Social Media ETF (the SOCL), which tracks a group of social media stocks, is down 7% thus far in 2014.

(Watch: Tweets are mysteriously disappearing from Twitter)

According to portfolio manager Chad Morganlander of Stifel's Washington Crossing Advisors, says there's a rotation out of highflying stocks into more stable, established tech companies.

"Twitter and its brethren social media stocks will continue to come under pressure," says Morganlander. "Yes, they are good business models. Yes, they have viable futures. But, we believe that the price action will continue to be on the downside."

This is due to a recent rotation from growth stocks to value stocks in the tech sector, according to Morganlander.

"Portfolio managers are starting to switch out of companies that have sales-to-enterprise values between 10 and 15 times," says Morganlander, "into more value stocks on the technology front with earnings multiples between 10 and 13 times."

Morganlander says old tech stalwarts like Cisco, Microsoft, IBM, and Accenture are turning into value plays for investors. "Stay away from the social media group for the time being," he says. 

(Read: Google, Facebook and Twitter to face French legal battle)

Meanwhile, Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson is not optimistic about Twitter's stock based on its technicals.

"It's really bad in the short-term," says Ross. "The perception, or market psychology, has really gone quite bearish here on highflying momentum stocks like Twitter."

Ross sees the stock as trading in a downtrend channel since late December, a month and a half after the company went public. As well, it has been trading below its technically significant 50-day moving average for more than two months.

"In the short-term, the technical trends continue to erode here," says Ross. "We've broken below $50 [per share] which is a key psychological level. Keep in mind this stock was priced at $26 [and] opened around $45 a share. So, this is a stock that's still trying to find itself. And, unfortunately, I think it's going to find itself lower in the not-to-distant future."

To see the full discussion on Twitter with Morganlander on the fundamentals and Ross on the technicals, watch the video above.

 

[Disclosures: Stifel expects to receive or intends to seek compensation for investment banking services from Twitter, Inc. in the next 3 months and makes a market in the securities of Twitter, Inc.]

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