When the market hits an air pocket, it is hard to buy stocks because of the fear in the air. But it’s times like this when stocks are cheapest because the fear has taken the optimism out of prices. Investors who overcome their fears can make their best buys at these times. Facebook and AMD are two stocks my best managers have made their single largest positions.
Facebook is 16% of Robert Frazier’s Medium Term Value Fund which is down 2.66% in May but up 24.68% year-to-date.
Robert last purchased Facebook in November when it was at $133. Today at $182 his purchase is up 36% in six months even though Facebook has lost $10 in May.
Facebook periodically becomes a punching bag for the government. Elizabeth Warren, for example, has proposed breaking up the company. The Federal Trade Commission is preparing to impose a fine of between $3 billion and $5 billion for allowing Cambridge Analytica improper access to the data on 87 million Facebook users.
Nevertheless, Facebook gives nearly a third of the world’s population a way to air their views to a large audience whereas traditionally the media has decided which views are worthy of public discussion. The market is transferring to Facebook whatever value is left in many traditional media outlets.
Each of Facebook’s 2.38 billion monthly active users generates, on average, quarterly revenue of $6.42, up 16% from a year ago.
There is no other company like it. If you would like to be notified when Robert updates his views, click here.
Advanced Micro Devices
Advanced Micro Devices (AMD) is 8.97% of Tony Mitchell’s Internet Fund which is down 1.54% in May but up 26.98% year-to-date. Tony recommended AMD in January 2018 well before it ran up 69% in 2018. He also made AMD his top pick for 2019 when it was at $19. Today it trades at $26.
AMD’s big run began when Intel announced in January that its processors were vulnerable to attacks called Spectre and Meltdown. The software patches Intel produced to mitigate these attacks were said to cause a reduction in CPU performance of between 5% and 25% depending on the workload.
AMD CPUs are significantly less vulnerable to Spectre and Meltdown because they do not use the feature that these attacks exploit. While not immune from these attacks, AMD’s software patches do not exact the same performance penalty. The advantage AMD gained in the datacenter market is largely why the stock ran up 69% in 2018.
Believe it or not, it’s happening again. In March, Intel revealed its CPUs were vulnerable to another attack called Spoiler, and last week, the researchers who discovered Spectre and Meltdown discovered a new vulnerability they call Zombieload.
Apple says that enabling the software patches to fully mitigate Zombieload, which they call Microarchitectural Data Sampling (MDS), caused as much as a 40% performance reduction in their testing.
AMD processors are immune to Spoiler and Zombieload attacks so it looks like AMD now has an even bigger advantage in the datacenter market than it had last year.
At $26, AMD is already up 36% this year, but Zombieload was only revealed last week and its impact on AMD’s market share is not reflected in the stock price.
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My Take: The best time to buy stocks is when they are down for reasons that have little to do with the company, and this is one of those times. But don’t plunge into the market and don’t wait for a more perfect time to invest. Make small investments that you won’t need to disturb for at least 5 years.
If you don’t own any Facebook or AMD, use the current market weakness to initiate a small position. It’s better to make small buys rather than waiting until you think the market has reached bottom before making a big purchase. If your brokerage firm charges a lot to make small trades, take a look at FOLIOfn, a brokerage firm I use for clients for precisely this reason, and in which I have no other economic interest.
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