Facebook is one of the top 5 positions in Tony Mitchell’s Internet fund. Over the past 5 years, Tony has recommended buying FB, even when it was trading below its IPO price, and all who did have been rewarded handsomely. After the market closed last week Thursday, Facebook announced changes to their newsfeed, prioritizing social engagement over viral videos. On Friday, the stock pulled back $8.40 closing at $179.37. Tony is using this 4.5% pullback to buy more FB.
Ken Kam: FB has provided some very good returns in your portfolio, but is warning that it may be cutting back on ads and fell significantly on a day that the DJIA was up over 200 points and the NASDAQ almost 50 – why do you still like it?
Tony Mitchell: Facebook is one of the greatest advertising mediums ever and has a long road of growth ahead of it. I’m a long term investor and we see pullbacks in the best of companies over the long term, but I’m a big believer in companies that make decisions that enhance their sustainability over the long term in lieu of short term gains. That is what FB is doing, taking short term pain for long term gain.
Kam: What if it drops further? Wouldn’t it be better to sell now and wait and see?
Mitchell: That is certainly what a lot of people did on Friday, but nobody can time markets well enough to win by moving in and out, and that holds true for stocks that are good long term holds like FB. FB had a similar move on Sept. 25, 2017 dropping $7.74 from the day’s high to the day’s low, closing at $162.87 and proceeded back up from there. Then from Nov. 28, 2017 to Dec. 4, 2017 it dropped from an open of $183.51 to a close of $171.47 and again proceeded back up from there. It may go down further over the next couple of days; however, I believe that this may be the last chance to buy it under $180.
Facebook reports earnings on Jan. 31, which is just a little over two weeks away and FB has a history of running up into earnings, and I doubt this time will be any different. However, I want to emphasize that I don’t invest for short term gains as they are too unpredictable, but over a longer time period, FB will continue to provide some nice returns. Back on August 4, 2016 when FB closed at $124.36, I told you that “I still see an average return greater than 20% over the next 2 years”, and in the last 16 months since then, FB has returned 51% at its recent high.
Kam: Where do you think FB is headed now and why?
Mitchell: I believe that we will see FB climb above $200 sometime this year, and reach $230 sometime in 2019. While that is only about a 14% return in 2018, and 15% in 2019, the cumulative return in the next two years, may be a great return relative to the market, and I’m probably being conservative. FB has pricing power – there is no better way to target specific demographics than FB and advertisers are very happy placing their ads on Facebook. Therefore even if ad slots are cut back, revenues will not necessarily be less. Additionally, Video, Instagram, Messenger, and What’s App are all still barely tapped monetarily.
Kam: What could go wrong for FB?
Mitchell: Governmental Regulations are probably the greatest concern for FB now. I believe that Facebook will work through any issues, and they are proactively working on it now.
Kam: Would you consider FB a best pick for 2018?
Mitchell: I consider “Best Picks” as stocks that have a very good chance of outperforming relative to the market, and what is best for one person may not be best for another depending on their needs and portfolio structure. With that said, I’ll give you four that I believe will outperform over the next few years, provide some diversity and have a good chance of outperforming in 2018 – they are: Twitter, Sprint, General Motors, and Citigroup.
My Take: Tony’s Internet fund finished 2017 up 29.8% outperforming the S&P by 8%. In 2016, his Internet fund finished up 26.4% outperforming the S&P by 14.4%, but more important is his long term record.
Tony started his Internet fund at Marketocracy in October, 2000. His returns have averaged 17.8% since then, way ahead of the S&P 500’s 6.02% return over the same period. Here is his track record.
Over the last 10 years, Tony’s Internet fund did better than the top U.S. Equity fund manager and would rank in the top quartile for the last 1 and 3 year periods.
Tony’s internet fund is not a mutual fund. It is an investment option for clients of our separately managed account program. For information about investing with Tony, click here.
