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Facebook: Conviction Rewarded

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For an investment angle on these and many more tech stocks, take a FREE trial to the TechStrat Report by Sean Udall.

I'll probably trim a little of my Facebook (NASDAQ:FB) this morning.

However, I might also buy it all back later today.

Here's why.

Basically, my discipline would almost force me to shed some shares as some of this position is now up over 55%. This doesn't include call options, some of which will be up ridiculous percentages. As an aside, I'm reading that many people booked options gains of 200-1000%. That's great, but I find these gains spurious. Option traders sometimes lose 50-100% on many positions. I know this because I've done this myself and have been since the 1990's. And option math can be a bit skewed as a total loss is maxed at 100%, whereas someone can play a weekly option trading for pennies, sell it for $0.50-0.70, and claim a 500% gain or greater.

I bring this up for a simple reason. This game is about dollars gained over a long period of time -- a marathon of investing, if you will. It's not about hitting a few select winners and bragging about them. And to do the former, you have to pick winning stock after winning stock that will work over a number of quarters, ideally years, and combine both investment and trading returns. And in my view, in the tech space, you have to be willing to buy the right price and wait for the catalyst to come!

I have been saying that FB is one of these names, and while many will describe this quarter as a break-out quarter, they are simply wrong and late.

FB has, in my view, produced three good-to-great quarters in a row, not to mention all the years it took to build it before it went public.

As I said in my last webinar, FB and Google (NASDAQ:GOOG) have the game, the set, and nearly the match. They are number one and two in nearly every online advertising vertical. The rest is left fighting for scraps or figuring out how to do deals with these two companies. Thus, investing and trading in them is about timing, valuation, and technicals, while investing around them for the time being will probably be an exercise in futility (I'm talking the internet space specifically here).

In fact, the only company right now that I  see with the ability to challenge either FB or GOOG in most of their verticals is Apple (NASDAQ:AAPL), because AAPL has the second-largest installed base of connected/paying/engaged users. But time will tell if AAPL chooses to challenge FB and GOOG, though the company is probing a couple of verticals around the edges.

So why might I buy any FB back or possibly even add to it? Simple, $32.50 is a key breakpoint. And after that level, there is really no resistance until $38 and that is where I'm pretty well convinced the stock will quickly go. Also, FB now isn't about just one good quarter; it's about a string of them and the smart money has been talking about this along with me. In fact, I think we will now see a lot of big money move into FB from some older, slower growth names. And many growth fund managers now have to add the name. Lastly, given the last quarter, I'd much rather be in FB than GOOG over the course of the next quarter. Then as we get closer to the coming reports, start building GOOG back up and shedding FB around or above that $38 IPO price.

Bottom line: this was a home-run quarter for FB, but not the first one. The stock is going higher and probably going to do so in rapid fashion. Above $32.50, we have a very nice no-resistance zone until 38. Then once this stock starts looking expensive at 38 and above,it will probably actually explode even higher.

For an investment angle on these and many more tech stocks, take a FREE trial to the TechStrat Report by Sean Udall.