Breaking News

Facebook Vs. Netflix: What's The Better Buy In A Market Downturn?

By Investing.com (Haris Anwer/Investing.com)Stock MarketsFeb 08, 2018 04:08
Facebook Vs. Netflix: What's The Better Buy In A Market Downturn?
By Investing.com (Haris Anwer/Investing.com)   |  Feb 08, 2018 04:08
Saved. See Saved Items.
This article has already been saved in your Saved Items

Markets don’t move in a straight line. This is a simple concept that should be understand when you become a long-term investor. But the extreme volatility we’re seeing these days is enough to spook many investors, especially those who've grown used to VIX complacency.

In an environment of confusion and fear, some investors forget the actual reason that led them to buy a stock in the first place. Such investors usually sell their best holdings at the first sign of danger, often for no good reason.

The current, ongoing correction, which wiped out about $4 trillion from global markets during the past week, is a manifestation of this herd mentality. And this time, the declines have nothing to do with the fundamentals of the economy and businesses.

So, if this is a blip in your long journey in the world of investing, how should you benefit from the current environment? Smart investors usually buy more of the stuff they like when the prices become more appealing. In the U.S. technology space, I like Facebook (NASDAQ:FB) and Netflix (NASDAQ:NASDAQ:NFLX).

These stocks have had a pretty amazing run during the past year, simply because each has a fantastic business model, something that's hard to replicate. And I don’t see the momentum of either slowing down anytime soon. Here is why:


FB Weekly 2016-2018
FB Weekly 2016-2018

If your investment philosophy is buy-and-hold, then you shouldn’t even think about selling Facebook stock in this market rout. Facebook is still one of the best growth stories in the tech world despite the recent investor nervousness about the company’s changing tactics on how it is letting users consume news.

Facebook combines some of the best qualities of an internet-era company. Its sales are growing at an impressive double-digit rate; it also has one of the best margins on each dollar earned. As for future growth, it has many untapped avenues, such as WhatsApp.

In the most recent quarter, Facebook sales rose 47% from a year earlier. You don’t see a company of Facebook's size regularly boost sales at this pace. Only a handful of global companies are growing more quickly than Facebook.

Along with expanding sales, Facebook also generated industry-beating profit margins. For each dollar of revenue, it makes $0.46 of operating profit. That's a performance that remains nothing more than a dream for many industry executives.

This impressive Q4 performance occurred despite Facebook's slowing advertising sales growth. But the latest earnings show that Facebook is capable of making up the difference thanks to the power of its platform, for which advertisers are willing to pay higher fees.

During the past five trading days, Facebook stock has shed about 5% of its value. As of yesterday's close it's trading at $180.18.

Still, this is the company which delivered more than 500% gains to shareholders during the past five years, far exceeding broader market returns. I would buy more shares of Facebook on weakness if I have cash sitting on the sidelines.


NFLX Weekly 2017-2018
NFLX Weekly 2017-2018

The world’s largest online TV network, Netflix, is another example of a stock worth buying during times of market distress.

The company last month reported its strongest year of subscriber growth to date. The performance was good enough to put Netflix into the fairly exclusive club of $100-billion companies by market cap after shares of the stock, currently trading at $265 after yesterday's close, almost doubled in value during the past year.

The power of the Netflix brand was tested during the recent market meltdown. The results were gratifying for shareholders as well as wannabes. Netflix outperformed many tech giants and remained strong.

In the most recent quarter, Netflix reported a record 8.3 million new subscribers, well above its previous guidance of 6.3 million. But Netflix's growth is not even close to peaking, especially when the company is getting a strong response internationally. Encouraged by the increasing demand for its content, Netflix plans to spend as much as $8 billion on programming this year, and another $2 billion for marketing.

There is no doubt that Netflix will face tough competition from some of the largest global entertainment companies such as Disney (NYSE:DIS), which plans to pour billions of dollars into streaming video content to grab some additional market share. Nevertheless, I see Netflix as well positioned to survive this onslaught.

Netflix has a great competitive advantage, including a valuable trove of user data that it can leverage to further monetize its customer base.

The bottom line: The way I see it, buying stocks is just like becoming a long-term partner in a business you like that you believe will continue growing. Both Facebook and Netflix are great growth stocks which should be kept in your buy-and-hold portfolio.

If you have extra cash on the sidelines it wouldn't be a bad strategy to add both to your positions, if you see some additional pullback in these stocks.

Facebook Vs. Netflix: What's The Better Buy In A Market Downturn?

Related Articles

Facebook Vs. Netflix: What's The Better Buy In A Market Downturn?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Are you sure you want to delete this chart?
Write your thoughts here
Replace the attached chart with a new chart ?
Post also to:
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Post 1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email