D.C. Deal Benefits Facebook

 | Oct 17, 2013 | 2:35 PM EDT  | Comments
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U.S. politicians have kicked the can for another three months, which can only mean one thing: It's time to buy Facebook (FB).

There's no real connection on the surface, but here are the reasons why I believe Facebook is cleared for takeoff for the remainder of this year leading up to its January earnings report.

  • We'll get Facebook's third-quarter earnings report at the end of this month. That should validate the trends in the second quarter and get people excited that there's a lot more ad budget being allocated towards social, which will continue to play out over the next couple of years.
  • The fourth quarter is Facebook's biggest because advertisers are falling over themselves to sell us their wares before the holidays. So if the third-quarter results are strong, many investors will assume that the fourth quarter will be even better. As we get into January, many will start to get excited to speculate about the fourth-quarter report.
  • The temporary political agreement only sets us up for more macro uncertainty that could gyrate markets in January and February. In the meantime, we finally have that overhang out of the way. Even though some companies, like IBM (IBM) and Intel (INTC), have had disappointing earnings, this earnings season is going to be a case of the haves and have nots. If you're holding on to share and trying to stay profitable by cutting headcount, you're probably not set up well in this economy. Facebook is the king of the mobile/social space. If advertisers are going to spend money to make money, they have to be on Facebook. That increased budget allocation has to be reflected in earnings, and upside surprises should continue to pleasantly surprise investors.
  • We might still be in for a Washington air pocket next year when the markets take a hit but, for the moment, we have smooth air. That should allow Facebook to finally break above its recent ceiling of $51, where it's trading today.
  • Instagram continues to grow like a weed. If it can actually start to insert ads this quarter, investors will be very happy.

The bottom line is this: If you bought Facebook last week when it dropped along with the rest of the market in response to fears that we really might drop off the debt cliff, you're up more than 10% on that trade.

This is a strong stock that's only been held back lately by the politicians. It's time for it to begin its upward trend again.

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