Stock (Symbol)

Facebook (FB)

Stock Price

$108

Sector

Technology

Data is as of

November 19, 2015

Expected to Report

Jan 26 – Feb 1

Company Description

Facebook, Inc. (Facebook) is engaged in building products to create utility for users, developers, and advertisers. People use Facebook to stay connected with their friends and family, to discover what is going on in the world around them, and to share and express what matters to them to the people they care about. Developers can use the Facebook Platform to build applications and Websites that integrate with Facebook to reach its global network of users and to build personalized and social products. It offers advertisers a combination of reach, relevance, social context and engagement. Source: Thomson Financial

Sharek’s Take

Big, dependable growth at below fair value, Facebook is a solid selection as my top stock for 2016. The first thing in selecting a top stock for a portfolio is what the stock market appreciates. Right now the stocks with good dependable profit growth are getting premium P/E ratios and those stocks are rising. It’s a tough stock market today because the strong dollar is zapping the profit growth for many big Us Dow-type stocks, yet Facebook is delivering. Last qtr it had 33% sales growth on 41% revenue growth (which would have been 51% if it weren’t for F/X). The company has been initiating a lot of ads on Instagram this year and has WhatsApp in its back pocket for future growth opportunity. Profits could rise 35% to 40% the next 4 qtrs and at 38x 2016 earnings estimates FB is undervalued. My Fair Value is 45x earnings, which is $129 next year and $169 in 2017.

One Year Chart

I did these charts about a month ago, stock was $108 then and its $105 today. So that’s another month of base building which is good if the stock breaks out at $110. That’s so-close to the current price FB could break out any week and go on a run. Or it could not. Solid profit growth of 33% last qtr and the estimated profit growth for the next 4 qtrs is 31%. The company has also been upping estimates then beating the street so in the end 40% the next 4 qtrs is possible.

Fair Value

When you consider FB is growing around 30-something percent, the stock is a relative bargain at 38x earnings. I looked at LinkedIn today and its P/E is 60. 45x earnings is reasonable, and that would be a $129 stock in 2016 with current estimates (which have been rising). At the current price this stock has the ability to go up 60% in two years.

Bottom Line

Facebook has been on a solid upward climb for years. 2015’s profit growth was slowed due to higher investments, but 2016’s profit growth is expected to be 32%.

Facebook has solid growth opportunity with Facebook, Instragram and WhatsApp, and count attain 35% to 40% profit growth in 2016. At 38 times earnings, the stock is also undervalued. This is a solid selection as my #1 stock heading into 2016.

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