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Thursday, February 06, 2020

1. Nasdaq closes higher as Facebook begins to climb

2. Social media stocks poised for election year?

3. Selecting for growth

Market Moves

The Nasdaq 100 index (NDX) closed .84% higher at yet another high-water mark, while Facebook (FB) shares managed to close only .35% higher. That amount is similar to the performance for the S&P 500 index (SPX) and the Dow Jones Industrial Average (DJX). However, shouldn't Facebook be performing like a growth and technology stock right now? So why isn't it running up along with the Nasdaq index? One answer may be that it will yet do so once election campaigns get in full swing.

The impeachment proceedings had very little effect on the market behavior over the past few months, but one certainty surrounding these events is this: record fundraising occurred. With the Iowa caucus this week and the New Hampshire primary next week, the campaigns have begun implementing their advertising strategies and this will undoubtedly create a windfall for social media companies. With Facebook's recent announcement that they see no need to place editorial restraint on political advertising—a pragmatic move about now—it is unlikely that company won't receive the lion's share of the advertising money earmarked for social media. Could it be that such a company represents a relative bargain right now?

Social Media Stocks Poised for Election Year?

It's not just Facebook shares that are likely to benefit from the election year machinery. The rising importance of social media platforms and their influence on public behavior have become the number one area of focus for campaign managers. Stocks such as Twitter (TWTR), Spotify (SPOT), and even Snapchat (SNAP), may find they have clever ways to tap into the political spending this year.

However, picking out the coming year's winners is undoubtedly perplexing. The chart below compares an equal-weighted portfolio of these three stocks and Facebook to Global X's Social Media Index ETF (SOCL). Over the past year the index has not done nearly as well as some well-chosen picks.

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Selecting for Growth

Perhaps the easiest answer for how to select social media companies actually comes from a shark tank. More specifically from one of the judges on the reality-TV series that airs on CNBC, Kevin O'Leary, a.k.a. Mr. Wonderful. O'Leary's ETF company O'Shares runs several ETFs including one targeting small-cap growth companies in the social media space (OUSM). The chart below shows that over the past year, this ETF has not only out-performed SOCL shares, but also iShares' Russell 2000 index ETF (IWM).

The Bottom Line

Stocks closed higher again for the fourth day in a row with the Nasdaq 100 outperforming all indexes. Facebook shares remain in the shadow of the technology index, but perhaps that spells opportunity for investors in an election year sure to be dominated by social media spending. Looking for growth among social media companies makes sense right now.