Is Facebook (FB) A Smart Long-Term Buy?

·3 min read

Kinsman Oak Capital Partners, an investment management firm, published its “Kinsman Oak Equity Fund” second quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly return of 2.7% was delivered by the fund for the Q2 of 2021, trailing its benchmarks, the S&P 500 Index, which delivered an 8.6% return, the Russell 2000 Index with a 4.3% return, and the TSX Composite Index that had a 10.2% gain for the same period. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

In the Q2 2021 investor letter of Kinsman Oak Capital Partners, the fund mentioned Facebook, Inc. (NASDAQ: FB) and discussed its stance on the firm. Facebook, Inc. is a Menlo Park, California-based social networking service company with a $1.03 trillion market capitalization. FB delivered a 34.95% return since the beginning of the year, while its 12-month returns are up by 21.30%. The stock closed at $365.51 per share on August 24, 2021.

Here is what Kinsman Oak Capital Partners has to say about Facebook, Inc. in its Q2 2021 investor letter:

"Our thesis on Facebook is largely playing out. The company overwhelmingly beat Q1 earnings estimates, and the growth outlook continues to look positive from here. Falling yields also benefitted the stock price as well. We continue to believe Facebook is attractively valued at ~12x FY22 EBITDA given its deep economic moat and underrated growth prospects."

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Based on our calculations, Facebook, Inc. (NASDAQ: FB) tops our list of the 30 Most Popular Stocks Among Hedge Funds. FB was in 266 hedge fund portfolios at the end of the first half of 2021, compared to 257 funds in the previous quarter. Facebook, Inc. (NASDAQ: FB) delivered a 12.51% return in the past 3 months.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

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Disclosure: None. This article is originally published at Insider Monkey.