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1 Stock to Buy, 1 Stock to Sell This Week: Meta Platforms, Snap

Published 10/22/2023, 06:54 AM
  • PCE inflation data, Powell speech, and mega-cap tech earnings in focus this week.
  • Meta Platforms stock is a buy with earnings due on Wednesday.
  • Snap shares set to underperform amid bleak profitability outlook.
  • Looking for more actionable trade ideas to navigate the current market volatility? Members of InvestingPro get exclusive ideas and guidance to navigate any climate. Learn More »
  • U.S. stocks tumbled on Friday to cap a losing week as investors worried about more interest rate hikes and the Israel-Hamas conflict spreading.

    For the week, the blue-chip Dow Jones Industrial Average declined 1.6%, while the benchmark S&P 500 fell 2.4%. The technology-heavy Nasdaq Composite sank 3.2% to notch its second straight week of losses.

    S&P 500 vs. Nasdaq vs. Dow

    The blockbuster week ahead is expected to be an eventful one filled with several market-moving events, including key economic data as well as a flurry of heavyweight earnings reports.

    On the economic calendar, most important will be Friday’s core personal consumption expenditures (PCE) price index, which is the Federal Reserve’s preferred inflation measure. As per, analysts expect both the month-over-month (+0.3%) and year-over-year rates (+3.7%) to remain at elevated levels.

    Economic Calendar

    Comments from Fed Chairman Jerome Powell are also on the agenda as investors look for more clues on the central bank’s policy outlook.

    Meanwhile, the Q3 earnings season hits full swing, with mega-cap tech companies Microsoft (NASDAQ:MSFT), Google-parent Alphabet (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), and Meta Platforms due to report.

    These mega-caps will be joined by big names like Intel (NASDAQ:INTC), IBM (NYSE:IBM), Boeing (NYSE:BA), Coca-Cola (NYSE:KO), Ford (NYSE:F), General Motors (NYSE:GM), Visa (NYSE:V), Mastercard (NYSE:MA), ExxonMobil (NYSE:XOM), Chevron (NYSE:CVX), United Parcel Service (NYSE:UPS), General Electric (NYSE:GE), 3M Company (NYSE:MMM), Verizon (NYSE:VZ), and Southwest Airlines (NYSE:LUV).

    Regardless of which direction the market goes next week, below I highlight one stock likely to be in demand and another which could see fresh downside.

    Remember though, my timeframe is just for the week ahead, Monday, October 23 - Friday, October 27.

    Stock To Buy: Meta Platforms

    I believe shares of Meta Platforms (NASDAQ:META) will outperform this week, with a potential breakout to a new 52-week high on the horizon, as the social media giant’s latest financial results will easily top estimates in my opinion thanks to its steady user growth and signs of improving conditions in the digital advertising market.

    Meta is scheduled to deliver its third quarter update after the U.S. market close on Wednesday, October 25 at 4:05PM ET. A call with CEO Mark Zuckerberg and CFO Susan Li is set for 5:00PM ET.

    Market participants expect a sizable swing in META stock following the print, as per the options market, with a possible implied move of about 9% in either direction. Shares rallied almost 6% after its last earnings report in mid-July.

    Unsurprisingly, an InvestingPro survey of analyst earnings revisions points to growing optimism ahead of Meta’s report, with analysts increasing their EPS estimates 22 times in the last 90 days, compared to just one downward revision.

    Meta Platforms Earnings

    Wall Street sees the parent company of social media networks Facebook, Messenger, Instagram, WhatsApp, and Threads, earning $3.61 per share, surging 120% from EPS of $1.64 in the year-ago period.

    If that is in fact reality, it would mark Meta’s most profitable quarter in two years, dating back to Q4 2021, as the Menlo Park, California-based tech company continues to focus on improving operating efficiency.

    Meanwhile, revenue is forecast to rise 20.6% from the year-ago period to $33.4 billion, which if confirmed would mark the second highest quarterly sales total in the company’s history.

    As such, I believe Meta CEO Mark Zuckerberg will provide solid guidance for the months ahead despite the challenging operating environment, as the social media company reaps the benefits of its expanding user base, fresh AI initiatives, and growing adoption of reels.

    Meta Platforms YTD Chart

    META stock - which rallied to a 2023 peak of $330.54 on October 12 - ended at $308.65 on Friday. At current levels, Meta has a market cap of roughly $795 billion, making it the sixth largest company trading on the U.S. stock exchange.

    Shares have soared 156.5% year-to-date, rising alongside much of the tech sector. It should be noted that even after the stock more than doubled since the start of the year, META shares remain undervalued at the moment according to InvestingPro, and could see an increase of 17.1% from the current market value.

    Stock To Sell: Snap

    I believe shares of Snap (NYSE:SNAP) will suffer a challenging week ahead, as the struggling social media company’s latest earnings report will reveal another worrying decline in both profit and revenue growth due to the challenging economic environment.

    Options trading implies a roughly 20% swing for SNAP shares after the update drops.

    Underscoring several headwinds Snap faces amid the current backdrop, an InvestingPro survey of analyst earnings revisions points to mounting pessimism ahead of the report, with all 17 analysts surveyed slashing their EPS estimates in the last three months.

    Snap Earnings

    Wall Street sees the parent company of social media messaging app Snapchat losing $0.05 per share, worsening from a loss of $0.02 per share in the preceding quarter and compared to a loss of $0.22 per share in the year-ago period.

    Revenue is expected to decline 2.6% annually to $1.1 billion, due to a weak performance in its core ads business, resulting from privacy changes in Apple’s iOS and growing competition from Chinese video-sharing app TikTok.

    That does not bode well for Snap’s monetization efforts, which will likely prolong its path to profitability and heighten its execution risk.

    The ad-reliant social media company badly missed profit and sales growth expectations when it released Q2 results in late July, sending shares down by more than 15%, as corporations and small businesses cut back on digital advertising spending amid the current operating environment.

    Snap YTD Chart

    SNAP stock ended Friday’s session at $9.44, earning the Santa Monica, California-based social media firm a valuation of $15.3 billion.

    Shares have underperformed the broader market this year, rising 5.5% in 2023, compared to the Nasdaq 100’s 33% gain.

    It is worth mentioning that Snap currently has a below average InvestingPro ‘Financial Health’ score of 2.27/5.00 due to concerns on profitability, growth, and free cash flow.

    With InvestingPro, you can conveniently access a single-page view of complete and comprehensive information about different companies all in one place, eliminating the need to gather data from multiple sources and saving you time and effort.

    Disclosure: At the time of writing, I am short on the S&P 500, Nasdaq 100, and Russell 2000 via the ProShares Short S&P 500 ETF (SH), ProShares Short QQQ ETF (PSQ), and ProShares Short Russell 2000 ETF (RWM). Additionally, I have a long position on the Energy Select Sector SPDR ETF (NYSE:XLE) and the Health Care Select Sector SPDR ETF (NYSE:XLV). I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies' financials. The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.

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