|Forbes.com, Fall, 2012. This article was written with Oliver Pursche, the Co-Portfolio Manager of GMG Defense Beta Fund. It was part of a series of articles developed under an agreement with forbes.com to work with a variety of contributors and assist them in delivering actionable investment ideas each week. The site, forbes.com is one of the top 500 sites in the world with nearly 10 million subscribers and nearly 100 million page views a month.|
Facebook (FB) has been the butt of many jokes since the company went public this past summer, falling from its IPO price of $38.00 to $17.55. One of the principal reasons for the sell-off, other than most likely having been overpriced to begin with–were investor fears that Facebook has not and would not be able to “figure out mobility.”
Meanwhile, Apple (AAPL) has been getting slapped around in recent weeks. After hitting an all-time high of $705.07 in late September, shares have fallen sharply and are now trading around $585. Shares hit a low of about $525–producing momentarily a dividend yield just north of 2%, equivalent to SPY. Investors seem to fear the shine has come off Apple and the many spectacular successes of years past cannot continue.
The concerns about both companies are valid, but as is almost always the case with the emotionally driven equities market, overdone. To me, they appear even more overdone when taking into account how recent strategic initiatives appear to be paying off significantly for both companies.
Let’s start with Facebook, a company I warned investors to stay away from prior to its public offering. Facebook has made tremendous strides in raising its revenue stream from advertising and gaming.
Moreover, it is also making strides in the mobile arena. Specifically, chief executive Zuckerberg’s admission on the most recent conference call that Facebook was late in developing and executing on a mobile strategy was a striking statement. Given how every word for most conference calls is debated and fought for between executive management and attorneys, a simple declaration of error could only be allowed in the presence of demonstrable and continuing success.
With mobile advertising generating 14% of ad revenue, I feel Facebook is in the game, and will prove to be a monster competitor in advertising and a variety of other products only Facebook could develop. These include gifts, Facebook exchange and custom audiences, among others. Shares have already risen significantly, but I think that this represents a good entry point for patient, long-term investors.
With respect to Apple, when shares were trading below $550, I shared my view that Apple shares would climb to $800 by the end of next year. Looking at this weekend’s sales figures from Apple, I think I may have been too conservative and the company could hit that target much sooner.
Apple stores were filled to the brim, and product was flying off the shelves. Most impressively, unlike most retailers, Apple did very little discounting–meaning that margins should remain high.
If you’ve been thinking about investing in these two companies, current levels may prove to be a great investment opportunity. Investors just need to remember that volatility is going to be part of the story and patience will is required.