Facebook and Tesla in Peril: Buy, Sell or Hold?

Mark Zuckerberg has been a very bad boy and Facebook (FB) just had a week from hell.

Normally I would appreciate seeing Zuckerberg get knocked down a peg or two – I don’t trust the guy. I saw this meme the other day from Zerohedge and it cracked me up.

However, all joking aside, some of my growth clients own Facebook and it’s important shares are properly managed so I wanted to drop in for an update.

Today, I am going to share a few thoughts on Facebook and the path forward.

Let’s take a look.

Facebook is basically getting busted for potentially illegally collecting massive amounts of user data in all kinds of nefarious ways – and then selling that personal data to the highest bidder.

The fallout has been intense.

  • The company’s reputation has taken a major hit.
  • The Federal Trade Commission (FTC) has launched an investigation.
  • CEO Mark Zuckerberg will supposedly testify in front of Congress (get your popcorn).
  • And finally Facebook could be facing a wave of growth-killing regulations.

That’s one heck of a week for Facebook. It’s a lot like driving a Ferrari into a brick wall at 180 MPH.

Except in this case – a Ferrari would be a bargain – it cost Facebook about $50 billion in market value after many investors chose to evacuate.

After posting big gains in the last two years, shares of Facebook are down 20% from the 52-week high, falling from 195 to 152. Take a look at the 2-year chart below.

So What Now? Buy, sell or hold?

Here’s my simple take on Facebook.

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For the time being I am going to stay patient. I don’t want to bail out of shares.

I think a lot of the damage has been done so I’m not in a huge rush to jump out.

Although I like to make fun of Zuck, the reality here is that FB is a very good company with plenty of long-term growth potential.

I don’t see these events having a material impact on the company’s long-term growth potential.

If anyone wants to get geeky with their research, this is one of the better research reports I have seen – from Morningstar.

“After conducting a sensitivity analysis based on the various ways that Facebook may be affected, we are sticking with our wide economic moat rating and $198 fair value estimate. While many downside scenarios are in play, we believe that a good portion of any potential downside is priced into the shares today. Facebook’s shares have sunk 18% since March 16 and are now trading at 0.77 times our fair value estimate.”

Time to Look at Facebook

Here’s another important point: virtually all of my clients who own this stock have long-term, growth objectives.

That means we can absorb a little volatility in the short run while focusing on the longer term potential.

My clients also have limited exposure to FB shares – this is why we always stay well diversified. If one stock struggles – other holdings can pick up the slack.

I am watching Facebook closely. If my outlook changes I will let everyone know. For now, we stay patient and look for a bounce.

Tesla Down 28% from 52-Week High

Tesla (TSLA) is also struggling right now after a string of bad news. A driver crashed and died in a Tesla Model X last week in California. And this week Tesla had its credit downgraded.

Tesla defends Autopilot after fatal Model X crash

Shares fell pretty sharply on the news – down 23% in the last two weeks and down about 29% from the 52-week high.

This is going to sound familiar. For the time being I want to stay patient with Tesla.

I still see long-term potential here.

Again, that outlook could change – if it does – I will share another update.

If anyone has questions – don’t hesitate to contact me. If you are a client and want to discuss an investment in these companies I am available.

Looking forward, the first quarter of 2018 is almost over.

It’s been a crazy quarter for the broader stock market and the cannabis sector. Ill be back this weekend to for a recap on the first quarter and what we can expect in the second quarter.

Disclaimer: This report is for entertainment purposes only. Every investor should consult with an investment advisor before making investment decisions. The Vodicka Group, Inc. is not a broker/dealer. We do not receive compensation for mentioning stocks. At various times, the clients, publishers and employees of Vodicka Group, Inc., may buy or sell the securities discussed for purposes of investment or trading.

ABOUT THE AUTHOR

Michael Vodicka

Michael Vodicka is the president and founder of the Vodicka Group Inc., a licensed investment advisor (Series 65) and a financial journalist.