On July 14, 2020, Wedgewood Partners released its Q2 2020 Investor Letter, a copy of which you can download here. The Fund returned 27.13% for the second quarter of 2020. Meanwhile, the benchmark Russell 1000 Growth Index and the Russell 1000 Value Index gained 27.84% and 14.29%, respectively. You should check out Wedgewood Partners’ top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash.
In the said letter, Wedgewood Partners highlighted a few stocks and Facebook Inc (NASDAQ:FB) is one of them. Facebook Inc (NASDAQ:FB) is a social media company based in California. Year-to-date, Facebook Inc (NASDAQ:FB) stock gained 15.9% and on July 13th it had a closing price of $239.00. Here is what Wedgewood Partners said:
“Facebook shares rebounded as the market discounted the scenario that the worst of the COVID-19 driven advertising slowdown is behind us. While the Company reported +17% revenue growth for the period ending March 31, management mentioned that revenue growth was about flat during the worst of the shutdowns in April. However, Facebook saw an astounding +70% increase in time spent on its properties as stay at home orders went into effect across the globe. After adding to shares during the first quarter, Facebook shares appreciated to more than 10% position size in portfolios, so we trimmed the position below this self-imposed limit. We continue to maintain Facebook at a meaningful overweight, as its growth and reasonable valuation multiple are currently a rare combination.
Despite the decline in advertising spend from COVID-19 affected industries such as travel and experiential entertainment, advertisers that were more positively affected by COVID-19 – like digitally native entertainment providers – ramped up their spend as pricing on the Facebook platform became particularly attractive, given the highly engaged user base.
Facebook-owned properties, including Instagram, Messenger, and WhatsApp, reported over 2.3 billion daily users as of March, with core Facebook daily user count up over +10% compared to a year ago. The billions of daily interactions among Facebook’s user base represents “content” that so many competing media companies spend hundreds of billions per year trying to create to gain people’s attention. While content creation costs at Facebook remain a fraction of smaller advertising-based businesses, the cost of moderating Facebook’s user-created content has risen over the past few years. Specifically, we estimate that Facebook has gone from employing just a few thousand content moderators in 2016, to more than 15,000 over the past year. We estimate that the cost of the Company’s expenditures on this content moderation has eclipsed well over $1 billion, after spending a fraction of that amount just five years ago. We expect Facebook will continue to reinvest profits back into rapidly expanding its content moderation efforts as social media commands increasing attention from its users, while advertisers demand more accountability from the content that users create. While these investments do not necessarily have a direct benefit to revenue or earnings growth near-term, we think it is critically important for Facebook to ensure that its platform is safe for users and businesses.
Facebook also launched a new e-commerce offering, Facebook Shops, with over 1 million businesses already enrolled. There are over 130 million small businesses using Facebook properties to communicate with their customers that can quickly and easily parlay their social media presence into a revenue-driving, digital storefront. Facebook has made several attempts at e-commerce offerings over the years; however, this most recent iteration is more open to third-party integration and will allow a seamless cross-platform experience, enabling merchants to reach a wider audience with best-in-class tools. We think Shops represents a sensible evolution of a long-term strategy that aims at providing more value to advertisers while enhancing the user experience and could begin to meaningfully contribute to Facebook’s top-and bottom-line growth over the next several years.
After we aggressively added to our Facebook position during the brief, first quarter sell-off, Facebook shares appreciated to more than a 10% weighting in portfolios, so we trimmed the position back below this self-imposed position size limit. We continue to have Facebook at a meaningful overweight, as its growth and reasonable valuation multiple are currently a rare combination.”
In Q1 2020, the number of bullish hedge fund positions on Facebook Inc (NASDAQ:FB) stock increased by about 8% from the previous quarter (see the chart here), so a number of other hedge fund managers seem to agree with Facebook’s upside potential. Our calculations showed that Facebook Inc (NASDAQ:FB) is ranked #3 among the 30 most popular stocks among hedge funds.
The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.
Video: Top 5 Stocks Among Hedge Funds
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. You can subscribe to our free enewsletter below to receive our stories in your inbox:
Disclosure: None. This article is originally published at Insider Monkey.