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Facebook (FB) Has Risen 38% in Last One Year, Outperforms Market

Alex Smith

If you are looking for the best ideas for your portfolio you may want to consider some of Saga Partners top stock picks. Saga Partners, an investment management firm, is bullish on Facebook Inc (NASDAQ:FB) stock. In its Q2 2019 investor letter – you can download a copy here – the firm discussed its investment thesis on Facebook Inc (NASDAQ:FB) stock. Facebook Inc (NASDAQ:FB) is a social media company.

In August 2019, Saga Partners had released its Q2 2019 investor letter. Facebook Inc (NASDAQ:FB) stock has posted a return of 38.7% in the trailing one year period, outperforming the S&P 500 Index which returned 9.2% in the same period. This suggests that the investment firm was right in its decision. On a year-to-date basis, Facebook Inc (NASDAQ:FB) stock has risen by 21.7%.

In Q2 2019 investor letter, Saga Partners said the fund posted a return of 11.3% in the second quarter of 2019, outperforming fund's benchmark the S&P 500 Index which returned 4.30% in the same period. Let’s take a look at comments made by Saga Partners about Facebook Inc (NASDAQ:FB) stock in the Q2 2019 investor letter.

"Sales and operating income grew a respective 37% and 23% in 2018 and are expected to grow a respective 26% and decline 7% in 2019. Lower operating income is expected as a result of increased investment in safety and security, innovations, and infrastructure.

Of our five largest holdings, we have owned Facebook the shortest time. We wrote about our initial investment and thesis during our 4Q18 investor letter so we will just briefly touch on the general Facebook opportunity.

Facebook is probably the best known and most followed investment in the Saga Portfolio and by far the largest in terms of market cap and sales. Some have commented to us that Facebook is a no brainer investment. This brings up the question, why should our investors pay us to invest in Facebook when they could just do it themselves? Believe us when we say that public opinion and consensus views on Facebook’s investment value varies widely.

However, even if Facebook was such an obviously attractive investment, we have no biases against the “no brainer” ideas. In fact, that’s exactly what we are looking for. There are no extra points for degree of difficulty in investing. It is not our goal to impress observers by our undiscovered obscure ideas or superior intellect. Our goal is to provide market beating investment returns over the long-term. If that means buying a high-quality company with strong growth prospects at an attractive valuation, that’s exactly what we will do.

Last year presented a rare opportunity to buy into one of the highest quality companies available at a significant discount. While shares have quickly recovered from the market lows, Facebook still offers very attractive expected returns from current prices. At the end of the quarter, Facebook was selling for a market cap of $550 billion. If you back out the $40 billion of net cash on its balance sheet, its enterprise value was ~$510 billion. This is only 22x its expected $23 billion of operating income in 2019 or 16x its expected $32 billion of operating income in 2020. These multiples continue to look very attractive considering the durability of Facebook’s platform and its growth potential."

In Q2 2020, the number of bullish hedge fund positions on Facebook Inc (NASDAQ:FB) stock decreased by about 1% from the previous quarter (see the chart here), so a number of other hedge fund managers don't seem to agree with Facebook's growth potential. Our calculations showed that Facebook Inc (NASDAQ:FB) is ranked #3 among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds' poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. You can subscribe to our free enewsletter below to receive our stories in your inbox:


Disclosure: None. This article is originally published at Insider Monkey.