Don’t despair. Times like these are often when the best investors make their best buys.
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The best time to buy stocks is when they are down for reasons that have little to do with the company. This is one of those times. When lots of big orders to sell hit the market stock prices can move down far more than is warranted by whatever precipitated the selling. Now that the market appears to have stabilized, two of my manager’s favorite stocks, AMD and Facebook, look like great buys.
Facebook is 16% of Robert Frazier’s Medium Term Value Fund which is up 29% for the year through August 1.
Robert last purchased Facebook in November when it was at $133. Today at $185 his most recent purchase is still up 39% in a little over eight months even after yesterdays drubbing.
Facebook competes with the mainstream media for advertising revenue. The market is rendering its verdict about which is the better model by transferring to Facebook whatever value is left in many traditional media outlets.
While much of the mainstream media struggles to grow their audience and revenues, Facebook now has 2.41 billion monthly active users generating quarterly revenue of $7.05, up almost 10% from last quarter.
Perhaps the biggest risk to Facebook is the U.S. government. For example, Elizabeth Warren has said she would break up Facebook if she is elected President. However, only 244 million of Facebook’s 2.41 billion users are U.S. residents. Even if some of Facebook’s future services, such as Libra, are not allowed in the U.S., Facebook can still be enormously successful.
There is no other company like it.
Advanced Micro Devices
Advanced Micro Devices is 10% of Tony Mitchell’s Internet Fund which is up almost 37% this year through the end of July.
Tony recommended AMD in January 2018 well before it ran up 69% in 2018. He made AMD his top pick for 2019 when it was at $19. Today it trades at $29.
AMD’s big run began when Intel announced in January 2018 that its processors were vulnerable to attacks called Spectre and Meltdown. The software patches Intel released to mitigate these attacks caused a reduction in CPU performance of between 5% and 25% depending on the workload.
While not immune from these attacks, AMD’s software patches do not exact the same performance penalty. The advantage AMD gained in the data center market is largely why the stock ran up 69% in 2018.
In March, Intel revealed that researchers discovered a new vulnerability they call Zombieload. Apple says that enabling Intel’s software patches to fully mitigate Zombieload caused as much as a 40% performance reduction in their testing.
AMD processors are immune to Zombieload attacks so AMD has an even bigger advantage in the data center market than it had last year.
The data center market was the bright spot for AMD’s Q2 but not enough to overcome declines in other areas. Lisa Su, AMD’s CEO, was cautious about how much market share AMD will take from Intel in the 2nd half. Many analysts mistook her caution as a lack of confidence, but I think it is a reflection of her desire not to overpromise. Intel is too strong a competitor to get over-confident about. I, for one, appreciate her candor. It makes me trust her more.
At $29, AMD is up more than 50% this year, even after yesterday’s drubbing.
My Take: If you don’t own any Facebook or AMD, use the current market weakness to initiate a small position. It’s better to build a position with a number of small buys rather than waiting until you think the market has reached the bottom and taking a plunge with a big purchase.
To learn more about Robert Frazier or Tony Mitchell, the stocks they have been buying recently, and sign up to be notified when they update their views, click on their names.