Do Facebook’s recent troubles present a buying opportunity?

Do Facebook’s recent troubles present a buying opportunity?

Originally written for CMC Markets via The Crown & Co.

This piece is a typical example of an Update: a short-form piece that informs investors on the likely impact of high-profile news stories on a company’s share price. During a year writing for Opto, I wrote 88 Updates, most of them following a similar overall structure.

The original post is linked above. The original disclaimers have been retained in the reproduction below.


The Facebook [FB] share price was rocked twice over on 4 October after a whistle-blower accused the company of prioritising profit over hate speech and a major outage crippled services, including WhatsApp and Instagram for six hours. Competitors like Twitter jumped on the bandwagon to capitalise on the empty spot.

The Facebook share price closed Monday 4 October 5.1% down from its previous close on Friday 2 October, although its low point for the day saw it nearly 6% down. The stock’s resilience left investors wondering if this made for a good buying opportunity.

A former Facebook employee, Frances Haugen (pictured above), testified to congress about policies and business practices she claimed made the company “morally bankrupt”. The tech major initially blamed the outage on a system update and issued clarifications that no data had been breached. Since then, it appears things have gone back to normal for the social media major.

Facebook shares beat the Global X Social Media ETF [SOCL], of which, as of 10 October, Facebook is the top holding, with 12.09% of net assets.

Resilience versus regulation

Despite reports that the outage, reportedly caused by employee error, was so severe that Facebook’s technicians couldn’t access the office in order to address the problem, and having the company’s business model demonised by a former insider, the Facebook share price was down less than 4% for the week ending 8 October.

This resilience may not hold if it leads to increased regulation. Facebook’s opponents are out to ensure that is the case.

MEPs in the EU are already calling for new rules to prevent business models that favour “disinformation and violence over factual content”, while, across the Atlantic, White House press secretary Jen Psaki told reporters that the US government feels the leaks were “the latest in a series of revelations” that show social media platforms’ attempts at self-regulation are “not working”.

Meanwhile, US Representative Alexandria Ocasio-Cortez was among those who claimed that the collateral damage resulting from the outage was proof that the company effectively wields a monopoly over global communication services. Anti-monopolistic sentiment has been fuelled by the latest developments.

Perhaps, though, the outsize impact of the outage is part of the appeal to investors. If Facebook can avoid any serious regulatory consequences from the week’s events, the company will appear to be in a position of great strength.

“Buy the selloff”

Observing that a stream of negative news stories had brought the Facebook share price down 13% from recent highs, JPMorgan analyst Doug Anmuth recently reiterated a third-quarter revenue estimate of $29.5bn and recommended investors buy the stock amid the pullback. He reiterated an overweight rating and $450 price target, according to The Fly, while pointing out that Facebook has weathered negative news storms in the past and has itself called for greater regulation.

However, on 5 October, DZ Bank analyst Ingo Wermann set a $350 Facebook share price target and downgraded the stock from buy to hold.

For now, many analysts remain positive about Facebook — unsurprisingly, given its dominant status in a social media industry which, according to a recent report from Research and Markets, could grow at a compounded annual rate of 25.38% to just shy of $1trn by 2026.

Out of 51 analysts polled by CNN Money, 34 held ‘buy’ recommendations for Facebook, with five rating it ‘outperform’ and 11 hold. Just one analyst polled gave a ‘sell’ rating.

Provided none of the week’s events prompt major turbulence to Facebook’s business model, the stock looks set to rise in future.

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

Will BlackRock and Goldman Sachs get a boost from earnings?

Will BlackRock and Goldman Sachs get a boost from earnings?

Originally written for CMC Markets via The Crown & Co.

This article is a typical example of an Earnings Preview; a short-form piece that previewed upcoming earnings announcements from high-profile stocks. I wrote 38 Earnings Previews in just over a year, most following this same overall structure.

The original disclaimers have been kept in the reproduction below.


Increased activity in the merger and acquisition space as well as pandemic-related stress sales have supported investment banks and kept their staff busy for most of this year.

“While the economic recovery is underway, our clients and communities still face challenges in overcoming the pandemic,” said David M Solomon, chairman and chief executive officer Goldman Sachs [GS] while detailing the previous quarter results.

During the quarter to September 30, Goldman Sachs acquired the asset management arm of Europe and Japan centric NN Group and reshuffled its top management.

Meanwhile competitor BlackRock [BLK] that had a tough second quarter saw its repeat customers hit and is likely to be looking to claw that back.

The stock price movements reflect that. Goldman Sachs share price, which rose over 50%, outperformed the BlackRock share price, up 18.8% in 2021 to 8 October. BlackRock’s share price roughly mirrored the S&P 500, which gained 16.9% over the same period.

BlackRock is expected to announce earnings for the third quarter of 2021 before markets open on 13 October, while Goldman Sachs is expected to release its own on 15 October.

The forecast for Q3 earnings

A consensus estimate on Zacks Equity Research pegs sales for Goldman Sachs at $11.25bn, up 4.3% year-on-year. Earnings per share estimate stands at $9.70 up just 0.2%. The CNN Money analysts have a higher sales consensus at $11.7bn and EPS of $10.14.

BlackRock is expected to report sales of $5bn – up 14.5% – and earnings per share of $9.63 up 4.5% year on year, as per consensus estimates by Zacks.  CNN Money’s estimates are not as generous in comparison with sales of $4.8bn and EPS of $9.57.

CNN Money analysts rate both companies a ‘buy’, with 17 out of 28 analysts polled giving that rating to Goldman Sachs and 11 out of 14 giving it to BlackRock. All three remaining analysts rated the BlackRock share price at ‘hold’, while nine recommended ‘hold’ for Goldman Sachs, with the remaining two split between outperform and sell.

Citi analyst Keith Horowitz recently raised his Goldman Sachs share price target to $440 from $410, citing higher short-term interest rates and positive signs for improving return on tangible equity (ROTE), according to The Fly. Credit Suisse analyst Susan Roth Katzke believes that ROTE is the key to Goldman Sachs’s long-term success, adding that earnings and revenue beats increase the bank’s chances of achieving its three-year plan. Improvements to capital ratios in annual stress testing are another potential bullish catalyst to watch out for according to the analyst, who set a $450 target for the Goldman Sachs share price.

Jefferies analyst Daniel Fannon raised his BlackRock share price target to $1,075 from $1,001 at the end of August.

Previous earnings performance

BlackRock’s previous earnings report, released before markets opened on 14 July, beat earnings expectations by 7.50% according to Zacks, but the outlook had factored a weak quarter. The BlackRock share price fell 3.06% on the day.

Investors may have been underwhelmed by BlackRock’s results compared to its investment banking rival. Goldman Sachs reported second-quarter earnings on 13 July, with thanearnings of 51.72% according to Zacks, and sales 31.87% above analysts’ expectations. Despite this, the Goldman Sachs share price also slipped on the day it announced earnings, by 1.2%.

Carey Halio, global head of investor relations at Goldman Sachs, acknowledged following Q2 earnings that “the last 18 months have been incredibly challenging”, but said the bank had made progress towards the objectives it laid out in its 2020 Investor Day.

BlackRock’s chairman and CEO Laurence Fink said his company “will continue to invest and evolve so we can deliver value for our clients, employees, shareholders and the communities where we operate”.

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

How to Pick Stocks: 13 Strategies Explained | CMC Markets

This piece was written for CMC Markets via the Crown & Co. It is a long-form listicle, introducing 13 strategies for (relatively beginner-level) investors to use to pick stocks to invest in.

The original article is linked below. The original disclaimers have been included at the end of this version.

How to Pick Stocks: 13 Strategies Explained | CMC Markets


The investment landscape is dominated by habitual winners, including the likes of Warren Buffett, who will pick stocks that have the best chance of gaining value in the long-term. But there are many different approaches for how to pick stocks for an investment portfolio or short-term trading.

Deciding which stocks to pick can be determined by individual factors unique to the person trading or investing, such as their level of experience or risk tolerance. These factors are what helps to discern the investment criteria for a stock picking strategy. This guide examines 13 strategies to help you pick your own stocks. Sign up for a trading account to start potentially profiting from the different strategies in this guide.

Why pick individual stocks?

Picking an individual stock can yield excellent gains if the stock increases in value. However, any individual stock has a relatively high chance of losing value over the long term. It is very difficult to try and predict which stocks will increase in value in the future.

Picking one stock is like backing one horse to win a race. You may win big if you get it right, but your chances of winning something could increase by backing several horses or going ‘each way’ – where you cover more ground. For this reason, many investors prefer to diversify their portfolio​ or trade on a mutual fund or exchange-traded fund to spread their bets. You could also trade on baskets of stocks (such as our share baskets) through derivative products such as spread bets and CFDs, which helps to offset the risk of one poor performer.

Things to consider before you start picking stocks

Decide your trading goals and timeframe

You might want to trade over the short-term with stocks that you think will increase in value quickly and allow you to cash out for profit. Meanwhile, a medium-term or long-term time horizon could be taken with stocks you are content to hold on to, such as high-paying dividend stocks, for example.

An investment timeframe will directly impact your portfolio mix. Income-focused stocks are typified by a solid cash flow and high dividend yields. Growth stocks tend to be companies that may not be profit-generating but whose sales are increasing quickly. Value stocks are generally well-established companies that generate consistent profits and have a secure position in the market.

Decide how much you want to risk

There are no guarantees when investing or trading. Stock prices can fall dramatically in value but can also spike higher and continue their upwards trend for years.

Therefore, decide carefully how much capital you are prepared to risk. The proportion of the wealth you are investing in should also match your strategy. Growth stocks can provide returns but can also be volatile, which increases a portfolio’s risk exposure.

Investing long-term is less risky than investing short-term because long-term increases in the broader stock market tend to outweigh short-term falls. Managing your risk profile is central to establishing an effective stock picking strategy.

How to pick stocks

Find companies you understand

CEO of Berkshire Hathaway Warren Buffett’s words of wisdom are to “never invest in a business you cannot understand”. There are several big advantages to sticking to companies or industries you know well.

Firstly, your knowledge of the business will give you a greater understanding of the opportunities and risks facing it than your competitors. Picking stocks is about reading a company’s prospects better than anyone else. If you lack understanding of a company’s business, you’ll have less of an idea of how positive its prospects are. If you’re going to invest in a company, it’s worthwhile having a basic understanding of how it operates and understanding every aspect of its balance sheet. You can do this by performing company analysis​.

Most professional investors spend their careers speculating on a particular set of industries, allowing them to consolidate their knowledge and expertise. By concentrating on a particular area, an investor can get better at predicting the impact of macro and micro changes, such as the release of new technologies.

Pick story stocks/trade the news

Story stocks are shares of companies that are priced based on a popular narrative of potential upside growth. In technology sectors, this can hinge around a company’s potential to discover or invent a ground-breaking new technology.

Story stocks, such as Amazon or Tesla, are quite extreme examples of growth stocks. Their profits either do not exist or do not come close to justifying their valuation, and large revenue increases are required to sustain investor optimism. They are consequently volatile but offer investors significant upside in exchange for an increased level of risk.

Trading the news involves keeping a close eye on what’s happening in the world, particularly macroeconomic events (such as changes in interest rates) that impact entire economies. The same news stories might affect various stocks and industries differently, so it is important to build up a good understanding of how different stocks will react to certain events.

Company news announcements are also an important source of information. But while a positive press release, such as an earnings beat, could indicate that a company’s stock might increase, traders need to be quick to take advantage. For example, Virgin Galactic’s share price gained 8% in pre-market trading the day after its first successful test flight but ended the day down 14%, thanks to subsequent news that it was looking to sell shares to raise funds.

Technical analysis

Technical analysis is one of the most used tools for picking stocks for short-term trading. It involves using past price performance to predict future performance through chart patterns and technical indicators. It has three underlying assumptions: that markets (prices) account for all relevant information about a stock; that prices move in trends rather than erratically; and that these trends tend to repeat themselves over time.

Technical indicators​ can help decide a trader’s entry and exit points. For example, breakout stocks are those that move beyond a certain level of support and resistance, or the upper and lower price limits that a stock has historically stayed within.

Breaking a resistance level will usually prompt investors to buy a stock and increase its price, while falling through a support level will increase pessimism and usually bring a stock’s price further down.

Technical analysis also relies on charting patterns, especially candlestick charts, to provide indications of future price movements based on past trends. For example, a very small candle (i.e., a small difference between the open and closing price) at the bottom of a downward trend is called a ‘morning star’ and is an indicator that a stock’s price decline is potentially about to reverse.

Analyst ratings

Analysts at investment banks and other financial institutions use a combination of technical and fundamental analysis to build up an investment case and price targets for financial instruments, including stocks. These usually consist of a rating, typically a variation of ‘buy’, ‘hold’ or ‘sell’, which give a general indication of whether they think stocks are likely to increase in value over a given period (usually 12 or 18 months). Hold ratings indicate that the analyst believes the stock will perform roughly in line with the market and/or other competitors.

Typically, one or more analysts upgrading their rating of a stock (e.g., from hold to buy) will prompt an increase in its share price, while downgrading has the opposite effect.

Analysts often accompany their ratings with a price target. This is what the analyst considers a fair price for the company’s stock, reflecting its expected future value (usually in 12 months’ time). Again, price target increases usually prompt a share price increase, and vice versa.

Company earnings

Analysts, market commentators and company insiders will often issue projections ahead of upcoming earnings reports. In the weeks building up to an earnings announcement, the bullishness or bearishness of analysts’ expectations will affect a company’s share price. If analysts anticipate a disappointing set of results, for example with earnings falling 5% year-over-year, a share price could take a hit in anticipation.

However, these projections are just estimates and analysts can sometimes get them wrong. Companies are frequently able to spring earnings surprises, either positively or negatively. Should the company’s earnings report reveal that earnings increased 5% year-over-year, it will have beaten analyst expectations and its share price will usually increase.

In fact, the share price could still rise even if earnings fall year-over-year. If the decline is less than analysts forecast because markets will have expected (and priced in) a worse set of results than what materialises.

Share price movements can sometimes happen very quickly after a surprising set of results, so it is important to pay close attention to announcement timings and be prepared to assess earnings reports as soon as they are released.

Trade positioning and sentiment

Some leading and lagging indicators​ can be used to identify stocks that have been overbought or oversold. If momentum starts slowing in a stock price, this can be a leading indicator that its price movement is about to reverse. For example, a stock whose price has trended upwards for 14 days, but whose pace of increase is slowing, could be running out of buyers and its price may soon fall.

Sentiment indicators​ can also be used to gauge general market feeling towards securities, including stocks. Bullish sentiment will normally result in increasing prices. Many traders like to use market sentiment to inform contrarian trading strategies — for example taking advantage of bearish sentiment to buy stocks when they are cheap and selling them when bullishness pushes prices up. Trade positioning and sentiment analysis can combine to guide timings of entries and exits.

Positioning and sentiment indicators can be technical or fundamental. For example, the CBOE (Chicago Board Options Exchange) Volatility Index, known as the VIX, is a technical indicator of expected upcoming market volatility for the S&P 500, while a disappointing earnings report would be a fundamental indicator of an upcoming fall in a company’s share price.

Insider trading

Company insiders tend to know more about a business’ prospects than markets in general and are legally obliged to disclose their trades. Insider trading activity can, therefore, be a strong leading indicator as to a company’s prospects. Indeed, research, such as that by Market Profile Theorem, has shown that insider activity is a reliable indicator of upcoming bullish or bearish sentiment.

Note that following insider trades is unlikely to give you a jump on the market regarding unknown news stories. It is illegal for insiders to trade shares based on news stories that aren’t public knowledge. They are more likely to give an indicator of general business prospects, or the likely impact that an already known news story might have on the company’s performance.

Follow big fund manager positions

Some fund managers develop a reputation as excellent stock pickers, and in these instances, markets can sometimes respond positively when they adopt a long position on a particular stock.

For example, Catherine Wood’s ARK Invest generated excellent returns by investing in high-growth tech stocks which ballooned in value through 2020. Her fintech-focused ARK Fintech Innovation ETF bought 66,100 shares in PayPal on 4 February 2021. Over the next seven sessions (through 12 February), PayPal’s share price gained 18.4%.

It is easier to follow some fund managers closely than others. ARK Invest reports all of its trades at the end of each day. Buffett’s Berkshire Hathaway is more secretive, but like all investment funds, is obliged to release 13F reports of trades to the Securities and Exchange Commission (SEC) on a quarterly basis.

In instances like Buffett’s, it is important to consider that very well-regarded investors will make their investment decisions based on the price of stocks at the time of their purchase. If prices have already risen significantly, it is possible that whatever hypothesis meant they considered them a good purchase at the time may no longer apply.

Find trending or social media stocks

February 2021 saw a notorious wave of ‘meme stock​’ trading, which was sparked by hyper commentary from the Reddit forum WallStreetBets. While several of the stocks targeted, like GameStop and AMC Entertainment, some saw their prices crash just as rapidly as they rose, many investors were able to realise large short-term gains by following the early recommendations of the subreddit.

If pursuing this strategy, it is important to remember that hype can be fickle and disappear very quickly. Timing an exit is crucial in this instance.

Fundamental analysis

Fundamental analysis​ considers qualitative factors, such as macroeconomic and microeconomic factors, to determine a company’s intrinsic or relative valuation.

It consists of three main parts: economic analysis, industry analysis and company analysis. For example, when analysing a company’s financial health, some metrics that could be used are its price/earnings ratio, which divides trailing 12-month earnings per share by the stock price to compare how much profit companies generate compared to its share price.

Some fundamental analysis indicators can focus on metrics like earnings and dividends, which are often more useful for value investing than growth investing. The Benjamin Graham school of value investing, which use fundamental analysis, guides Buffett’s investment strategy.

An industry analysis indicator could be a company’s market share, for example. Meanwhile, economic indicators​ like GDP, inflation rates and interest rates are also helpful in determining how a company’s value might be impacted in the future.

Use a stock scanner

Stock scanners or stock screeners are trading tools that automatically search markets and identify potential stock picks based on user-selected criteria. These can dramatically reduce the amount of time it takes to identify relevant stocks.

Different stock screeners have different features and capabilities, so it’s important to do your research and select the one that works best for you. We’ve compared eight UK stock screeners​ that could all serve as a starting point for selecting stocks to trade on. Some of these allow searches to be run for free, while others require a subscription.

Many stock scanners allow searches to be run using a combination of fundamental and technical indicators.

Find stocks with rising volume and price

A stock with rising volume may indicate that a buying trend might be gathering momentum. If a stock’s price and volume are increasing at the same time, it may mean that positive market sentiment is gathering pace and driving the stock upwards.

The opposite is also true. Decreasing volumes amid an increasing stock price may indicate an upcoming reversal. Additionally, if volumes are increasing as price falls, then prices could be set to fall further. However, if a falling price is accompanied by decreasing volumes, then it could be about to bottom out and gain in price.

Stock signals

It is possible to set triggers or alerts for action, either buying or selling stocks, based on fundamental or technical analysis. These can act as a good prompt to take advantage of trading opportunities. You can set these up in our trading platform, so read more about trading alerts​.

We also offer a built-in pattern recognition scanner, which looks for chart patterns of interest, such as wedges and double bottoms. Traders can use this to receive alerts for stocks that are exhibiting these bullish or bearish patterns.

FAQ

Are there any currency fees for trading stocks?

When trading on stocks on our Next Generation platform, there are no currency conversion fees because when you trade stocks via spread bets or CFDs, you never actually own the underlying asset. Instead, you are using leverage to speculate on its price movements, potentially netting you magnified gains (or losses) when compared with just buying the stock outright. Learn about derivative trading​.

What are the most popular stocks?

To find out what the most popular stocks are today, login to our platform and open the product library. There is a topical watchlist called ‘Popular Products’ which is updated daily with the most traded products for your region over the last seven days. You can filter this by ‘Type’ by selecting ‘Shares’. Similarly, we offer a ‘Hot Products​’ watchlist, which contains stocks whose recent trade volume has increased significantly versus a monthly average.

Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.