No company is more unloved right now than Facebook…

The social media giant’s shares have crashed more than 20% in the wake of the Cambridge Analytica scandal.

For those who don’t know (or who need a recap), news broke last week that research firm Cambridge Analytica had harvested data from 50 million U.S. Facebook users.

The firm used a data mining app to collect information from users—and all their friends… That’s about 200–300 people per user.

Facebook says Cambridge Analytica violated its policies and it banned the firm from the company’s platform. And CEO Mark Zuckerberg apologized for the breach.

The Federal Trade Commission is looking into Facebook’s data practices. And regulators in the United Kingdom are investigating the company, too.

Facebook isn’t only facing potential legal problems… The public backlash has been swift and brutal…

#deletefacebook Is Trending…

Celebrities such as Will Ferrell and Cher said they’re deleting their Facebook accounts.

Billionaire Elon Musk announced his Tesla and SpaceX companies are shutting down their Facebook pages… Apple CEO Tim Cook took a dig at the beleaguered company, saying he “wouldn’t be in this situation” if he were Zuckerberg.

Even Playboy is leaving Facebook over the platform’s privacy policies…

Investors are fleeing because of the bad publicity. According to one recent Twitter poll, 74% of them think Facebook’s stock will drop even further.

With all the negative news surrounding Facebook… the contrarian in me is starting to get very interested…

You see, at the Daily, we’re always looking for an opportunity to “fade the move.” That means when the media zigs, we zag for profits. (We used this same strategy in January to show you how to profit from “fake news.”)

The media smells blood. But we smell a potential moneymaking opportunity…

Facebook Is Fixing Its Privacy Problem

Regular readers know we’re bullish on platform companies like Facebook and Amazon. In the past, we’ve called them modern monopolies. And we believe they will continue to outperform the market for the remainder of this current bull run.

The scandal currently rocking Facebook won’t change that.

Here’s why…

Facebook is instituting stronger privacy protections.

It’s simplifying its privacy settings menu, introducing new privacy shortcuts, revising data download and editing tools, and rewriting its terms of service to better explain how it holds and uses data.

The new protections will make the user experience better… and eventually stem the outflow of Facebook users.

And despite the #deletefacebook trend, you won’t see a mass migration from the platform…

Facebook has more than two billion users. And although most of its revenue comes from North America, most of its user growth is overseas. That’s where future revenue growth will come from.

But here’s something you won’t see in the mainstream media: Not all of Facebook’s revenue comes from Facebook…

Other Revenue Generators

Facebook owns two other massive social media platforms: Instagram and WhatsApp.

And no one is threatening to leave them.

Instagram is Facebook’s main growth engine. Research firm eMarketer projects Instagram revenue to grow 88% in 2018. That will offset any potential losses from the Facebook side of the business.

So, the fears of lost revenue are overblown.

Facebook has been slow to do anything with WhatsApp since it bought the messaging service for $22 billion in 2014. But it plans to start monetizing the service’s 1.3 billion users. And it’s considering charging businesses to use the service.

That’s another potential revenue stream…

But there’s another reason to like Facebook—it’s cheaper than you think…

Unsuspectingly Cheap

Back in October, I told you Facebook was a relatively cheap company based on its return on assets (ROA). ROA measures the amount of profits a company makes relative to its assets.  

According to Valens Research, one of our trusted sources, Facebook earns an astronomical 57% ROA. Wall Street pegs the company’s ROA at 14%. (See the October 10 Daily for a longer write-up.)

Facebook is also cheap based on its price/earnings to growth (PEG) ratio. Anything under 1 signifies a company is cheap compared to how fast it’s growing.

Facebook’s PEG ratio is 0.86.

I don’t think the bad press will hurt Facebook’s profitability over the long term. But in the short term, it will take a hit. And that’s giving us a low-risk entry point.

A Perfect Risk-Reward Setup

Regular readers know that I like to use a little technical analysis. It helps me decide when to get into—and out of—a trade.

Right now, my analysis is telling me Facebook is a low-risk buy.

The chart below shows Facebook’s uptrend line. It’s provided strong support for the company’s price.

Over the past five years, Facebook has bounced off its trendline five times. Each time, the stock rocketed higher.

As of this writing, Facebook’s uptrend line is sitting at about $145. If the price falls below that number, that means I’m wrong and a rout is on… and it would be time to consider selling.

But if I’m right—and Facebook overcomes its problems—I think the company will reach new highs this year. And that would be a 27% gain.


Nick Rokke, CFA
Analyst, The Palm Beach Daily

P.S. At the Daily, we like to buy when “blood is in the streets.” That’s when you get the best deals. We’re seeing that with Facebook now. Do you see the company’s problem as an opportunity or a trap? Let us know right here


In today’s mailbag, more feedback about Teeka Tiwari’s most recent 3-Minute Market Minder on cryptocurrencies (watch it right here)…

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This tech insider has personally invested his money in 89 of the world’s most promising breakthrough technologies. He says the “God Key” is more valuable than all of them combined.

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