4. Meta Platforms, Inc. (NASDAQ:META)
Free Cash Flow: $35.83 Billion
Number of Hedge Fund Holders: 184
Meta Platforms, Inc. (NASDAQ:META) is cash-rich enough to weather an economic downturn and is also trading at bargain levels right now. As of September 7, Meta Platforms, Inc. (NASDAQ:META) has a trailing twelve-month PE ratio of 12.50 and has free cash flows of $35.83 billion.
Wall Street is bullish on Meta Platforms, Inc. (NASDAQ:META). On July 28, RBC Capital analyst Brad Erickson revised his price target on Meta Platforms, Inc. (NASDAQ:META) to $190 from $200 and reiterated a buy-side Outperform rating on the shares. On August 10, BofA added Meta Platforms, Inc. (NASDAQ:META) to its U.S. 1 list, which contains Buy-rated companies.
At the end of Q2 2022, 184 hedge funds were long Meta Platforms, Inc. (NASDAQ:META) and held stakes worth $18.19 billion in the company. Of those, Fisher Asset Management was the top shareholder with stakes worth $1.86 billion.
Here is what RGAIA Investment Advisors had to say about Meta Platforms, Inc. (NASDAQ:META) in its second-quarter 2022 investor letter:
“Consequently, many former growth darlings now qualify as “value” stocks to the point where the Russell 1000 Value Index even includes our growth holdings. A great example of this is one of our recent purchases: Meta Platforms (NASDAQ:META), the company formerly known as Facebook). As it stands today, META is the fifth largest holding of all in the Russell 1000 Value Index.
We followed Facebook for years and were often asked “why own Twitter when you can buy Facebook?” Sure enough, Twitter’s return was far better over our holding period and we now deployed a decent portion of our Twitter proceeds into META. META today strikes us as one of the cheapest stocks in the entire market and one of the more interesting setups we have seen. META was hit with a triple-whammy of tough COVID comps, changes in Apple’s privacy policies and emerging competition from TikTok.
Despite all this, the company continues to grow, albeit at slower rates. At its lows this year, META was trading for low teens forward P/E (15x 2022 numbers today) and this is despite investments in the Reality Labs division at around a $10b annualized rate. If we exclude the Reality Labs investments, the core META properties of Facebook, Instagram and WhatsApp would earn somewhere around 23% more in bottom line EPS. This would chop about 2.5 turns off the company’s P/E.
Speaking realistically, there is no sign Mark Zuckerberg would entirely stop these investments; however, we do think Zuckerberg is realistic about his stock price and very well might defer a large portion of the investment until core earnings reaccelerate. Further, we think it is appropriate to value the company on a sum of the parts basis and rather than fully expense the Reality Labs investments against the core properties, we should think about what the actual value of that investment might yield. Either way, even fully expensing Reality Labs, this company is far too cheap to ignore.”
