You would have to be wearing a pair of Meta's (META) Oculus Quest 2 virtual reality goggles not to notice that META shares are on Thursday morning trading at a level lower than they were five years ago. There was nothing encouraging in the former-Facebook's earnings report. Nothing. As the Bureau of Economic Analysis confirmed that same morning that the U.S. is now in a recession, you should ignore all obfuscation and spin-meistering to the contrary; two consecutive quarters of decline is a recession. Period.
A recession is not a great time to be running an advertising business, which is essentially what META, with its components, Facebook, Instagram and WhatsApp, is. But, lest you think these markets are not efficient, let me repeat: META shares are this morning trading at a level lower than they were five years ago.
Don't spin it. Two quarters in a row of contraction is a recession and a stock that has declined while not paying a single dividend to you in five years is a bad investment. We hold these truths to be self-evident at my firm, Excelsior Capital Partners.
In the course of doing my research on META last night, I found clips online of people wearing Oculus goggles. Some folks have recommended purchase of META stock. Wrong.
How did people miss generational inflation and the deleterious effects it would have on the U.S economy and, by definition corporate bottom lines (remember there is always a lag period between the latter and the former)? I don't know.
So, that's the meta- (not META) point I am trying to make here. Throughout 2022, I have been preaching that these Big Tech stocks are overvalued and demonstrating that via the raging success of my FKGBT model portfolio, which is here in free-to-all form. Whether it's advertising -- META, Twitter (TWTR) , Snap (SNAP) -- or an electric car like Tesla (TSLA) , or a handset like Apple's (AAPL) or the millions of stock-keeping units that Amazon (AMZN) is trying to sell you, these Big Tech companies have to generate revenue somehow. When revenue generation slows, costs need to be addressed. This was the clear message from Tesla's closing of a facility dedicated to autonomy in San Mateo, Zuckerberg's truly depressing recently leaked messages to META employees, and Twitter's slow-motion implosion since Elon's takeout offer.
Watch what these companies do, not what their C-suite executives say. That's a great way to lose money. That and listening to Cathie Wood, as we are once again being reminded with Teladoc's (TDOC) implosion Thursday morning.
But at the end of the day, you have to feel good about your investments, hence the fad of environmental, social, and governance. Well, as is my wont, I have created a new ESG. I am investing my clients money in the following areas only:
E: Energy. We are still in early days of the boom in hydrocarbon prices.
S: Shortages. These companies produce industrial commodities that are clearly in short supply.
G: Garbage. I will short the heck out of names that provide products that are awful for society, like social media platforms. Yes, that's working with META. Feels good.
So, if a company is not using its assets to produce a good that is in high demand, while facing short supply (that includes, but is not limited to, oil) I won't own it. If the company has no assets and is producing a socially irresponsible product -- like 98% of the sludge that fills up my Facebook feed -- I will short it. That's ESG, baby.
I honestly can't explain why META was being accorded a trillion-dollar valuation as recently as September, and I honestly don't care. It's the opposite of ExCap's ESG, so we wouldn't ever buy META stock, anyway. But it's been a heck of a good ride shorting it. Keep the faith, and keep buying companies that have productive assets.