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1 Stock To Buy, 1 Stock To Dump When Markets Open: Facebook, Virgin Galactic

By (Jesse Cohen/ MarketsMay 02, 2021 13:46
1 Stock To Buy, 1 Stock To Dump When Markets Open: Facebook, Virgin Galactic
By (Jesse Cohen/   |  May 02, 2021 13:46
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Stocks on Wall Street slipped on Friday, with the major averages all ending down, but within sight of their recent records amid ongoing optimism over the economic recovery.

S&P 500 Monthly Chart
S&P 500 Monthly Chart

The coming week is expected to be an eventful one. It brings another batch of high-profile earnings reports from companies, such as, Roku (NASDAQ:ROKU), Square (NYSE:SQ), Pfizer (NYSE:PFE), and Moderna (NASDAQ:MRNA), as well as more important economic data, including the latest U.S. employment report.

Regardless of which direction the market goes, below we highlight one stock likely to be in demand and another which could see further downside. 

Remember though, our timeframe is just for the upcoming week.

Stock To Buy: Facebook

Facebook (NASDAQ:FB) shares—which just scored their biggest weekly gain in almost two months—have been on a tear recently, rising about 26% since the start of March.

The social media giant, which also owns Instagram and WhatsApp, has benefitted greatly from an acceleration in online advertising spending following a brief slowdown amid the coronavirus pandemic.

FB stock—which has gained roughly 61% over the last 12 months—ended at $325.08 on Friday. It hit $331.04 on Thursday to record its first all-time high since August.

At current levels, the Menlo Park, California-based social network company is valued at $936.3 billion, inching closer to the coveted $1 trillion market cap club.

Facebook Daily Chart
Facebook Daily Chart

Investor sentiment was lifted last week, when Facebook reported monster first quarter earnings and revenue, thanks once again to robust advertising sales.

Earnings per share soared 93% from the year-ago period to $3.30, much better than expectations for EPS of $2.35. Revenue, meanwhile, climbed 48% year-over-year to $26.2 billon, easily beating estimates for sales of $23.7 billion.

Ad revenue climbed 46% compared to last year, while other revenues, which include e-commerce as well as augmented reality and virtual reality (AR/VR) headsets, surged 146% to $732 million.

In fact, Facebook CEO Mark Zuckerberg repeatedly referred to AR and VR as the next frontiers in a years-long quest for its billions of users to communicate, shop and sell products.

Zuckerberg also said the company will focus on building e-commerce features to expand beyond its ad business.

To add to those encouraging developments, Facebook said monthly active users (MAUs)—widely viewed as a key barometer of Facebook’s global growth—rose 10% from the year-ago period to 2.85 billion. Daily active users (DAUs)—another key metric—increased 8% to 1.88 billion.

Despite several headwinds, such as, ongoing antitrust scrutiny, lingering privacy concerns, as well as looming changes which could negatively impact its core ad business, FB stock appears to be a safe bet this week amid the company’s many positive trends.

Stock To Dump: Virgin Galactic

Shares of Virgin Galactic Holdings (NYSE:SPCE) look set to stay under pressure in the coming days as investors fret over the negative impact of various factors plaguing the beleaguered space tourism company.

The firm announced late Friday that it will refile its official 2020 financial results in response to new accounting guidance issued by the Securities and Exchange Commission (SEC) for special purpose acquisition companies (SPACs).

As a result of the restatement, Virgin Galactic also said it will delay the release of its upcoming quarterly earnings report by about a week to Monday, May 10.

The space travel firm was initially slated to report its Q1 financial results on Tuesday, May 4, after the closing bell.

The SEC guidelines call into question whether warrants issued by blank check companies, such as Virgin Galactic, and DraftKings (NASDAQ:DKNG), could be considered equity instruments.

Virgin Galactic Daily Chart
Virgin Galactic Daily Chart

SPCE stock ended Friday’s session at $22.15, nearly 65% below its all-time high of $62.70 touched on Feb. 4. Year-to-date, shares—which were up by 164% at one point—are now down 7% through the end of last week.

At current valuations, the Las Cruces, New Mexico-based space tourism company has a market cap of $5.3 billion, despite losing money and generating little to no revenue as yet.

Virgin Galactic’s losses have accelerated in recent weeks following news that ARK Invest’s Space Exploration & Innovation ETF (NYSE:ARKX), run by well-known growth investor Cathie Wood, sold nearly half its stake in the company. By doing so, Woods cut the ETF’s holdings of SPCE stock to one of its smallest positions.

That followed news of significant share sales from billionaire founder Richard Branson and renowned venture-capital investor Chamath Palihapitiya, who is also chairman of Virgin Galactic.

Given the flurry of insider selling and waning enthusiasm for SPACs, as well as delays to its space test program and commercial flights, SPCE stock looks like a vulnerable investment in the near term.

1 Stock To Buy, 1 Stock To Dump When Markets Open: Facebook, Virgin Galactic

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1 Stock To Buy, 1 Stock To Dump When Markets Open: Facebook, Virgin Galactic

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Comments (1)
joshua otuka
joshua otuka May 03, 2021 8:32
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Thanks for the wonderful analysis. Technical, accurate and intuitively directional.
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