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Why Polen Capital is Bullish on Facebook (FB), Bearish on Booking Holdings (BKNG)

Polen Capital Management, LLC, an independently-owned global investment manager, recently published its first-quarter focus growth commentary – a copy of which can be downloaded here. During the first quarter of 2020, the Polen Focus Growth Composite Portfolio returned -13.03% gross of fees, while the Russell 1000 Growth and S&P 500 indices were down 14.10% and 19.60%, respectively.

In the said letter, Polen Capital spoke about Facebook Inc (NASDAQ:FB) and Booking Holdings Inc. (NASDAQ:BKNG) stocks. Facebook is a social media and technology company based in California. Booking Holdings is the world’s leader in online travel. Here is what Polen Capital said:

“We also sold Booking Holdings and deployed the proceeds into Facebook. Booking was our smallest portfolio weighting because we had been monitoring the company’s slowing growth profile amid a maturing European hotel bookings market. The massive impact from COVID-19 and a lingering effect on global travel for at least some period of time added to our concerns. We determined that our remaining investment in Booking would be better deployed into Facebook. Facebook is trading at a similar valuation, has stronger competitive advantages (although to be fair, Booking’s competitive advantages are likely strengthening during this period as well), has a much stronger growth profile, and should see far less impact on its business from COVID-19. In addition, Facebook has a pristine, cash-heavy balance sheet and, in our view, excellent long-term growth prospects. We expect that regulatory concerns around Facebook will likely diminish as the U.S. government grapples with more pressing issues surrounding COVID-19. Governments may see more clearly some of the value Facebook can bring to its stakeholders such as the ability to quickly provide COVID-19 information and news from reliable sources to large portions of the population, and the strongest “anti-Big Tech” Democratic presidential candidates have now suspended their campaigns.

Facebook’s advertising revenue will be impacted significantly in the short term. Nonetheless, we expect the business to rebound quickly when this crisis eventually subsides, just as Google’s did post the Financial Crisis. Facebook and Google, now Alphabet, provide high returns on investment for advertisers. We believe that these digital platforms have only become more attractive for advertisers during the crisis because engagement has increased meaningfully, and these platforms have grown even closer to their marketing partners. Facebook should be well positioned to benefit once advertisers are in a position to, once again, accelerate ad spending.”

In Q4 2019, the number of bullish hedge fund positions on FB stock increased by about 3% from the previous quarter (see the chart here).

In Q4 2019, the number of bullish hedge fund positions on BKNG stock decreased by about 15% from the previous quarter (see the chart here).

Do you think it is appropriate to buy FB stock?

Disclosure: None. This article is originally published at Insider Monkey.

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