The Trump bull run might be getting a tad on the overheated side after going on one of the fiercest rallies off the lows of March. With the CNN Fear and Greed Index swinging right back into “greed” territory, with market momentum moving towards extreme levels, it certainly feels like it’s a good idea to wait around for another pullback.
After all, the markets are right back to being “expensive” again, and with the ongoing conflict in Iran, there’s certainly room for a big negative surprise. Still, not everything is blasting off to new heights. Some consumer-facing stocks are stuck in a correction, and depending on which sector you look at, it feels like the winds of recession have already come blowing in. In any case, this piece will look at some of the pockets of undervaluation that still exist in today’s soaring market.
So, independent of what happens next with Iran, the following names, I think, are cheap and have ground to make up, should the market decide to broaden out, or maybe spare the following lukewarm stocks as some of the froth gets cut off the top of the high-flying semiconductor stocks.
Some industries are more affected by the war in Iran than others. And in this piece, we’ll look at a name that’s resilient in the face of geopolitical black swans and one name that’s already taken a big hit at the hands of the disruptions arising from the Middle East.
Meta Platforms
First up, we have Meta Platforms (NASDAQ:META | META Price Prediction), which is too great a company to consider a trap as its forward price-to-earnings (P/E) multiple hovers around 20.0 times. If it’s not a value trap, it’s real value that’s hiding in plain sight. So, why aren’t more investors biting at these depths?
If it’s not high AI CapEx (it seems like only Alphabet (NASDAQ:GOOG) has earned its hall pass to spend more), the money-losing Reality Labs, which I’m sure many investors would be happy if Meta shelved indefinitely, the somewhat concerning regulatory headlines, or, perhaps most scary of all, the loss of daily active users for the first time in the first quarter, then maybe it’s more about Meta’s underwhelming position in the AI race following the release of Muse Spark.
There’s so much for the bears to point to these days. And with Alphabet firing on every cylinder at only a modestly more expensive multiple, it might make sense to rotate to what’s “working” in this climate. That said, I wouldn’t dare overlook Mark Zuckerberg and the many positives that investors might be missing from the last quarter.
The case for severe undervaluation
Even if the user dip headline was horrifying, the company still grew its top-line by 33%. That’s nothing short of incredible. Add the booming ad business into the equation, and how AI is helping power such numbers, and I think it makes little sense to ditch the name after an already devastating post-earnings plunge.
It feels like nobody has any confidence in Reality Labs, but if you’re a believer in the future of augmented reality and smart glasses, perhaps the hardware business is a wild card that’s essentially thrown in for free.
Also, Zuckerberg has the option to undergo another “efficiency year” in efforts that aren’t AI. Who knows? Perhaps the next big year of efficiency could be driven by AI, as the firm looks to put AI to work where it can.
In my view, it’s less about where Meta stands in the AI race today (it’s still playing from behind) and more about its current velocity. It has the tech, talent, and resources to make up for lost time. After all, the company’s willingness to spend big money on top AI researchers probably won’t be for nothing.
The Trump-era bull rally may have left Meta stock behind in the past year. But it’ll probably be back and ready to close ground soon enough.
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