Is Facebook (FB) Still A Great Investment Choice?

·3 min read

ClearBridge Investments, an investment management firm, published its “Large Cap Growth Strategy” second quarter 2021 investor letter – a copy of which can be downloaded here. The ClearBridge Large Cap Growth Strategy underperformed its Russell 1000 Growth Index benchmark during the second quarter. On an absolute basis, the Strategy had gains across seven of the eight sectors in which it was invested (out of 11 sectors total). The leading contributors to performance were in the IT sector. 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 ClearBridge Investments, 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, that currently has a $971.9 billion market capitalization. FB delivered a 25.57% return since the beginning of the year, extending its 12-month revenues to 42.37%. The stock closed at $347.63 per share on July 14, 2021.

Here is what ClearBridge Investments has to say about Facebook, Inc. in its Q2 2021 investor letter:

"Facebook saw its antitrust case dismissed by the FTC in late June, an outcome that highlights the challenges regulators face in pursuing these cases. Investors are acutely aware of all the calls for change among the mega caps, but the legal framework around antitrust and privacy laws makes these difficult cases to win. For Facebook, we believe regulatory risk had been overpriced in the stock, while the potential probe into Apple and calls to open up its App Store to outside sellers could be a more material risk."

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Based on our calculations, Facebook, Inc. (NASDAQ: FB) tops our list of the 30 Most Popular Stocks Among Hedge Funds. Facebook, Inc. was in 257 hedge fund portfolios at the end of the first quarter of 2021, compared to 242 funds in the fourth quarter of 2020. FB delivered an 11.33% 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.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage.

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