This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

It's Time to 'Unfriend' Facebook From Your Portfolio

Stocks in this article: FB ZNGA LNKD GOOG

>>5 Stocks Ready to Break Out

A move below the neckline, currently just above $26, is the immediate-term sell signal for this stock. Momentum, measured by 14-day RSI, has been trending lower too, adding some bearish confirmation to this trade. Add in the fact that Facebook has been extremely obedient to technical factors since it started trading, and this becomes price action worth heeding in March.

There's Value -- Somewhere

I don't hate Facebook. In fact, I wish the company well. And investors should be aware that despite the problems with shares today, there's still considerable value in this company. Just not $27 worth.

Facebook currently has around 900 million monthly active users (depending on what qualifies a user as "active"), and that certainly has value. Even if it's clear that those users aren't as valuable as users of Google's paid search product, they're still worth a lot. So is the mountain of personal information that Facebook has on each one of them.

Targeted marketing data is extremely valuable, and if Facebook can find a better way to walk the line between befriending advertisers and maintaining customers' privacy concerns, there is a huge opportunity.

Online gaming through Zynga (ZNGA) currently makes up around 15% of Facebook's sales. That revenue stream is exactly the kind of business that FB should be pursuing -- it lines up the firm's sales with what users are actually trying to do on the site. The more money Facebook can earn by helping users get what they want (instead of distracting them), the more valuable each user becomes.

Another obvious piece of value is cash. Facebook has almost $10 billion of it, making up around $4 per share of reduced risk. While that certainly helps to trim back the lofty price-to-earnings ratio (a cash-adjusted P/E is a more meaningful measure, anyway), the firm is still trading for a hefty growth premium to where Google was during the same period.

The long and short of it is that Facebook needs to pursue new products if it wants to justify the sort of earnings multiple that it's currently trading for. As it stands now, the stock is woefully overvalued. Worse, the technical factors at work in Facebook point to a near-term change in trend to the downside.

3 of 4

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,908.16 +103.36 0.58%
S&P 500 2,071.83 +1.18 0.06%
NASDAQ 4,773.7480 +8.3680 0.18%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs