Should You Buy Facebook (NASDAQ: FB) Stock? HA!!!!! - Mike Swanson (05/18/12)
Facebook. It is going to start to trade today on the Nasdaq under the symbol FB. It has been the talk of the financial news all week and I have even gotten a few emails about it from people asking if I think they should buy it.
Most of these people remember Google. They remember that back before Google went public there were financial commentators saying that it was overvalued and that they shouldn't buy it. And of course Google went up and became one of the strongest stocks in the market.
People also I believe are interested in Facebook simply because they like it. They like having a profile and posting pictures and comments and getting attention from their "friends."
Well I treat Facebook like any other stock and IPO.
I'm not going to buy Facebook when it opens today. For two reasons. One simple reason is that I am getting ready for some huge opportunities and am saving my money for that.
I'll get to that in a second.
But the second reason is that I believe you SHOULD NEVER buy an IPO on the opening day. It's great if somehow you bought some Facebook before today and before it goes public. If you did I'm happy for you. But most people haven't.
The problem is what a stock does after it starts to trade in its first day is simply random. There is no chart history to help you figure out the trend. There is no real earnings history to understand the company with - and BTW - Facebook earnings have been flat the past few months.
If you want to trade a newly trading stock I believe the best thing to do is just wait a few weeks. IPO's do one of two things. They either open up and crash to nothing over time or else they open up, go wild for a day or two, and then pullback and form a new base. If they are truly the next Google they then break out of that base and start a long march up.
So the prudent thing to do if you want to play Facebook is just wait to see if it bases and then buy if it breaks out.
Look and see how this would have worked with the other social media stock of this year ZNGA:
Now if you just buy right on the open to be frank I think you are nothing but a pure gambler. You are coming to the stock market in my view with no plan at all. And with no plan you might as well just go to Vegas and play the slots.
Also I think it is important to point out to you that the stock market is in a correction that is likely to continue for at least another month or two. If Facebook holds up and bases out during that correction then I may even buy it. But I'll let the market and Facebook stock prove to me if it's going to be a good one to buy instead of just buy today and hope. I want the stock to PROVE ITSELF TO ME!!!! Otherwise I don't care. And I'm not going to buy Facebook just because I like the website, because Facebook the company doesn't care about me. So why should I just give it money for nothing?
And as for its fundamentals I don't think anyone can argue that it is a cheap company to buy.
Now personally I see some much bigger opportunities than Facebook to buy into also - real companies that are at super cheap valuations. Of course we have the gold stocks that have been melting down.
But the Greek stock market is currently trading at a P/E of around 6!!! I think it has lower to go. But once it nears default I'm going to start to build a position in Greek stocks. I'm looking at one that is trading around $1.00, has a P/E around 3, pays an 8% dividend, and is probably going to fall down to 50 cents and then end up at $10 in 2013. I'll put a report together about the Greek stocks I'm looking at soon for Power Investor members and send them a buy alert once I do buy. It probably will be in 4-6 weeks.
I spent about three hours on the phone last night talking to Dave Skarica about the opportunities in Greece and I woke up at 5:00 AM this morning excited about them! I'll write about it in detail for you over the next few weeks.
As for the stock market. I think we're due for a bounce. Gold and gold stocks seems to have been leading the market and were up big yesterday so I expect the market will bounce here too for a few days. Maybe even a week!
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