Tags: bargains | facebook

Some See Bargains as Others Raise Cash to Buy Facebook

Thursday, 17 May 2012 05:25 PM

 

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Besides making its early investors rich, Facebook's initial public offering is already having another effect: making other stocks cheaper.

Institutional investors selling off some assets to raise cash to buy shares of Facebook Inc. and continued worries about debt issues in Greece, have been largely responsible for the 3.6 percent drop in the Standard & Poor's 500 index over the last five days, according to several market experts.

Charles Biderman, the chief executive officer of TrimTabs Investment Research, is scooping up shares of what others are shedding. He thinks that the sell-off will end on Friday once institutions have a chance to buy Facebook shares.

"I bought gold today for the first time in quite a while," he said, citing recent price declines. The $63.5 billion SPDR Gold Shares ETF is down 6.9 percent over the last month and 1.2 percent over the last week, according to Morningstar.

Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut, said that making cash available for Facebook shares could be one catalyst for recent declines in Apple Inc, which have fallen about 6.5 percent since Friday.

Other companies that investors could be selling to raise cash to buy Facebook include Pandora Media Inc, LinkedIn Corp, and Google Inc, Sheldon said.

Facebook is expected to be valued at more than 99 times earnings in its IPO debut, though that valuation should jump significantly higher if the stock pops on its first day, as many analysts expect.

The S&P 500, by comparison, trades at a price to earnings value of 14. Apple and Google trade at P/Es of 13 and 19, respectively, making them look like bargains compared with Facebook.

Sheldon said that it is also likely that mutual funds that focus on media stocks are selling traditional media companies such as CBS Corp and Viacom Inc to make space for Facebook. That could lead to short-term bargains, he said.

"To the extent that these stocks have come down because of Facebook, that could be opening up opportunities for investors," he said.

CBS, for instance, is down 8.5 percent over the past five days after jumping 17.1 percent since the start of the year. Yet it continues to be attractive because of its affluent audience demographics, noted James Goss, an analyst at Barrington Research.

Goss has a target price of $41 for CBS, which fell 5.5 percent to $30.02 Thursday. CBS trades at a P/E of 14.7.

 

JAPANESE FACEBOOKS?

Of course, some investors say that the best bargain is avoiding shares of Facebook completely. At the annual Sohn Investment Conference in New York on Wednesday, noted hedge fund manager David Einhorn joked that Facebook's road show "felt like a rock concert."

He said that he preferred Japanese social networking companies DeNA Co Ltd and Gree Inc.

Both companies have profit margins that are comparable to Facebook and better than social gaming company Zynga Inc but trade at single digit price-to-earnings ratios and have sold off recently because of regulatory scrutiny over the addictive nature of online gaming, Einhorn said.

DeNA, for instance, had fallen 21 percent over the last month through Thursday's close. It trades at a P/E ratio of 8.5. Gree, meanwhile, had fallen 28 percent over the last month through Thursday's close. It also trades at a P/E ratio of 8.5.

© 2014 Thomson/Reuters. All rights reserved.

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