Meta stock blowup is an important investing lesson: strategist

Big-cap tech stocks such as Meta, parent of Facebook, and Netflix aren’t as safe as Treasury bills, despite what the Wall Street community has pumped into the heads of investors for the past five years as these stocks have exploded. They aren’t as safe as other large-cap stocks in the market, either.

And those are but a few of the takeaways for investors in the wake of Facebook’s post earnings 30% crash on Thursday, opines Tony Dwyer, Canaccord Genuity chief markets strategist.

“Everybody went and thought that some of these mega-cap growth names were defensive. It’s not proving out that way,” Dwyer said on Yahoo Finance Live.

In defense of that view are the God awful market reactions to relatively weak earnings in the past week from high beta tech trades Facebook and Netflix.

Facebook said Wednesday it added just 2 million monthly active users in the quarter, barely moving the needle from the prior quarter. In the third quarter, the platform added 15 million monthly active users.

Daily active users fell by 1 million as Facebook saw increased competition from TikTok. The company missed analyst profit estimates by a whopping 14 cents.

For 2022, Facebook sees slowing growth and a $10 billion hit from privacy changes to Apple’s iOS operating system.

As for streaming giant Netflix, its stock plunged 21.8% on Jan. 21 as it served up a tepid outlook for subscribers in the first quarter.

These are starkly different stock price reactions than the norm with these two tech behemoths. All traders have known — generally — is minting money with Facebook, Netflix and companies similar to them in stature.

Both Facebook and Netflix (two key members of the closely followed FAANG (Facebook, Apple, Amazon, Netflix, and Alphabet’s Google) stock complex) have been two of the hottest stocks in the market these past five years amid very strong profit growth — rising 206% and 83%, respectively. During that same span, Apple shares have gained an impressive 444% and Amazon 245%. Google is up 255%.

But the Facebook and Netflix routs hint that investors may look at the FAANG complex rather differently moving forward.

In effect, investors could still assign super premium valuations to Google and Apple (winners in the cloud and wearables) while staying on the sidelines with Facebook and Neflix as they lack the same structural tailwinds (more stay-at-home pandemic plays).

Adds Dwyer, “You are in the situation where a lot of folks went to these names thinking they are defensive. They aren’t.”

A painful reminder for many Facebook investors today.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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Source: https://finance.yahoo.com/news/meta-stock-blowup-is-an-important-investing-lesson-strategist-202112198.html