Stick With Facebook, but Think Twice About Whole Foods
The S&P 500 ETF (SPY) - Get Report is flat on Thursday, but that's not stopping shares of Facebook (FB) - Get Report from rallying. The stock is up 5% following the company's top- and bottom-line earnings beat. Shares are now up 16% over the past month and 40% on the year.
The earnings results were "better than flawless," said Josh Brown, CEO and co-founder of Ritholtz Wealth Management, on CNBC's "Fast Money Halftime" show. Not only does the stock price have upward momentum, but so does Facebook's business. With 1 billion daily active users, Facebook is in a league all of its own.
Brown is staying long, but Pete Najarian, co-founder of Optionmonster.com and Trademonster.com, decided to take profits and sell his long position in Facebook. While the company has a great long-term outlook, the stock seems likely to trade sideways for a while following the big rally, he explained.
Facebook's impressive earnings results confirm what Stephanie Link, portfolio manager at TIAA-CREF, had been suspecting: ad dollars are flowing from traditional avenues -- away from companies like Time Warner (TWX) , which had weak guidance -- and toward companies like Facebook and Alphabet (GOOGL) - Get Report . Investors should stay long both stocks.
Jim Lebenthal, CFO and CIO of Lebenthal & Company, is not long Facebook, but said the stock's valuation is actually somewhat attractive. While it may look expensive at first, it's really not too bad given how fast the company continues to grow. Investors who own the stock should stay long, he reasoned.
Gene Munster, senior research analyst at Piper Jaffray, came away highly impressed with the company's results. So impressed actually that he raised his price target to a whopping $155.
Not only does Facebook continue to execute at an amazingly high level, but it has so much future growth, Munster said. He argued that Facebook can start pulling levers on Instagram and WhatsApp to drive advertising revenues, while its virtual reality property, Oculus Rift, is setting up to be a long-term growth driver. CEO Mark Zuckerberg is a visionary and he knows where he's going.
Munster acknowledged that costs may climb in the short term, but in the long term, Facebook should continue to see margin expansion.
Unlike Facebook, Whole Foods Market (WFM) is struggling Thursday. The company missed on top- and bottom-line earnings estimates, causing the stock to drop 2.5%. The stock is off its session lows however, as it earlier made new 52-week lows at $28.73.
Whole Foods co-CEO Walter Robb said he thinks the stock is a good buy and therefore management initiated a new $1 billion buyback.
But if the co-CEO thinks the stock is such a good buy, maybe he should put his money where his mouth is and buy the stock himself, Brown said. Insider ownership at Whole Foods Market is quite small, he pointed out.
Link added that she would rather see the buyback money going to the company's business plans, as its fundamentals continue to deteriorate. Revenue growth guidance of 3% to 5% for 2016 isn't strong enough, especially when the stock is trading at 19 times forward earnings.
While the company does have longer term opportunities, Pete Najarian said, he agreed with Link. The company is being pressure by its competitors right now, hurting margins.
The conversation turned to Valeant Pharmaceuticals (VRX) , as shares plunged 15% Thursday. The stock is now down 70% over the past three months.
The options volatility is incredibly high -- so high that Najarian is avoiding it. He did note that there have been several large bearish bets placed against Valeant.
Brown added that Valeant has career risk tied to it, as no one wants to be long in a stock which has been an enormous disaster the past few months.
There are so many good stocks in the health care space, why buy Valeant? On that note, Link highlighted how well both Celgene (CELG) - Get Report and Gilead Sciences (GILD) - Get Report have been doing.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.