As the market narrows, your best defense is to have a strong offense. That’s why, in my Blue Chip Growth newsletter, I focus on only the best large-cap stocks that money can buy. One of those stocks is Facebook Inc. (FB), a rare “Triple-A” stock. In Portfolio Grader, it earns an A for Quantitative Grade, Fundamental Grade, and Total Grade. What makes Facebook so special? Why should we buy it now? Let’s find out in today’s blog.
Reason #1: Instagram just hit 500 million monthly users.
Today, Facebook made a huge announcement: Instagram, its photo-sharing app, now has 500 million monthly users. In just two years, Instagram has doubled its monthly user base. Instagram also has 300 million daily users, who share more than 95 million pictures and videos each and every day. Interestingly enough, over three-quarters of Instagram users come from outside the United States.
In addition to Instagram, Facebook also owns Whatsapp (which has 1 billion users), as well as its proprietary Facebook Messenger app (with 900 million users). And that’s not even mentioning the 1.5 billion mobile monthly active users on the flagship Facebook app.
Reason #2: FB is going to split three-for-one
As you may have heard, investors approved a special three-for-one stock split. Existing shareholders will receive two shares of new Facebook class C stock for each share of FB they previously held. The class C shares will carry no voting rights, but those who held the original class A shares will keep the same voting rights. And, because FB shares will be trading at a third of their previous price, the lower share price may attract more buyers.
Reason #3: Analysts can’t get a handle on Facebook’s profit potential.
With all that’s going on at Facebook’s Palo Alto headquarters, it isn’t surprising that Facebook has excellent forecasted sales and earnings. This quarter, analysts are expecting the social media giant to post 48.5% annual sales growth and 62.0% annual earnings growth.
Then again, Facebook has a tendency to trounce expectations, so it’ll likely do even better. Consider this: Over the past 60 days, analysts have revised the consensus EPS estimate 12.5% higher. These kinds of upward revisions tend to precede blowout earnings surprises.
Reason #4: FB trades at a reasonable Forward P/E.
With Facebook’s projected earnings climbing ever higher, Facebook’s forward price-to-earnings ratio continues to fall. Currently, FB trades at less than 25 times forecasted earnings. That’s right around the industry average for Internet Information Providers. By comparison, TripAdvisor (TRIP), GrubHub (GRUB), LinkedIn (LNKD), Groupon (GRPC) and Yahoo! (YHOO) all trade at much higher valuations—with forward P/E ratios of 29, 31, 45, 56 and 65 respectively.
For these reasons and more, FB is an A-rated Strong Buy in Portfolio Grader. Click here to review its Stock Report card.