This earnings season, shares of Facebook (FB), Twitter (TWTR) and Netflix (NFLX) got pummeled by investors, and mostly for good reason. However, as they used to say on Sesame Street, “One of these things is not like the others.”
Facebook and Twitter are somewhat rightfully being avoided due to subscriber growth problems. Do you have a relative or friend who’s under age 25? They mostly don’t use Facebook at all, and that doesn’t bode well for future subscriber growth. But when you ask them, “Why do you think Netflix might be a good stock to own?”, they immediately say “original content”, and begin talking excitedly about Queer Eye.
If somebody gave me FB or TWTR shares as a gift today, there’s no way I’d keep them. I don’t think they’ll rebound in 2018. Pouring that money into NFLX stock, however, could be a wise decision.
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Caveat: NFLX does not meet my investment criteria because it’s a pure growth stock, without the value component of my investment strategy. Nevertheless, if somebody gave me NFLX stock as a gift today, I’d smile and say “thank you”.
Last week I advised, “If I were a pure growth investor, I’d watch for a near-term opportunity to buy NFLX stock below 355.”
Well, that opportunity has arrived—though it might not last long. The stock appears to have bottomed, bouncing off support at 334 last week and setting up shop around 350 in the last few trading days. All of the money that’s leaving FB and TWTR is looking for a new home, and it’s starting to find one in Netflix stock. (See chart below.)
I’m sharing this brief CNBC video, “Wall Street Letting Fear Overtake Rational Investing”, because I completely concur with the guest expert. News headlines are chronically negative this year, yet all kinds of excellent things are happening with economics, employment, savings, corporate revenue and profits. I’m sure you’ve figured out by now that the media has a certain point of view, a certain way that they will continue to present data to the public – a way that’s neither realistic nor constructive.
On the bright side, the short-term volatility that’s created by all the fear-mongering has created tremendous opportunities in stocks like Netflix (NFLX). Stick with companies that are thriving and add to your positions when the market whimsically pummels them.
And if you want a little help finding undervalued growth stocks like NFLX, consider taking out a subscription to my Cabot Undervalued Stocks Advisor newsletter. I specialize in finding great growth stocks that have, for one reason or another, been overlooked or needlessly punished (like NFLX stock) by Wall Street. Since starting the advisory in October 2015, I have an average annual return of 22.2!
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*Note: This post was excerpted from the July 31 issue of Cabot Undervalued Stocks Advisor.