It's no secret that the best way to generate wealth over the long term is by investing in the best companies you can find and holding their stock for years, if not decades. That said investing isn't necessarily for the faint of heart (as we've seen in recent years). The Nasdaq Composite index remains mired in a bear market, down 26% from its late 2021 peak. The result is some of the most compelling individual stock opportunities investors have seen in more than a decade.
Seasoned investors know that every U.S. bear market in history has eventually been followed by a bull market -- and there's no reason to expect that this time will be any different. In fact, Wall Street is remarkably optimistic about the prospects of one formerly high-flying growth stock, and multiple analysts upgraded their views of it this week alone.
If the view of one of those analysts is right, this stock is set to soar by more than 50% over the coming 12 months.
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A tech innovator has fallen out of favor
During much of the decade or so since its initial public offering, Facebook, now a subsidiary of Meta Platforms (META -0.52%), developed a reputation for being made of Teflon -- nothing negative seemed to stick to it. However, the social media powerhouse finally met a headwind it couldn't easily shake off with the current downturn, and its stock remains 46% off its peak. Yet some on Wall Street believe the selling has simply gone too far. There are numerous catalysts that could push the stock to new heights.
Meta Platforms went on a hiring spree during the pandemic, believing the surge in online activity was here to stay. As a result, its headcount nearly doubled from 44,942 in 2019 to 87,314 by the end of Q3 2022. When internet activity reverted toward historical trends, Meta Platforms found itself with a bloated workforce, something management has been working to rectify.
In November, the company slashed 11,000 jobs -- or 13% of its total workforce. Then, just last week, Meta revealed plans to cut another 10,000 jobs this year, while closing an additional 5,000 job openings. The moves are all part of a broad restructuring that also includes eliminating low-priority projects. CEO Mark Zuckerberg called the events of the past year "a humbling wake-up call."
In a regulatory filing last week, Meta lowered its full-year expense forecast to a range of $86 billion to $92 billion, its second such downward revision in recent months. These lower cost projections include not only the aforementioned staff reductions but also "other cost reduction measures," including a drastic consolidation of the company's real estate footprint. All of these factors should help Meta rebound.
A rebounding ad market
It's well documented that businesses look to cut costs when economic uncertainty increases. Marketing budgets are among the first to be slashed as it's fairly easy for companies to dial up or dial back their advertising spending on short notice. This phenomenon has been in full view in the digital ad markets over the past year, as both Meta Platforms and Alphabet's Google experienced revenue declines. In the fourth quarter, Meta's advertising revenue fell by 1% year over year, while Google's slumped by 4%.
The news isn't all bad. Marketers are currently tightening their purse strings, but once the economy bounces back -- as it inevitably will -- ad spending too will rebound, bringing Meta Platforms with it.
Wall Street is overwhelmingly bullish on Meta Platforms
Of the 58 analysts who cover Meta, 39 rate the stock as a buy or strong buy, and not one recommends selling. Wall Street veteran and Evercore ISI analyst Mark Mahaney is the most optimistic among his peers. Last week, he boosted his price target on its shares from $275 to $305 while maintaining his outperform (buy) rating on them.
He cited the company's "two key announcements" last week as the reason for his enthusiasm. The combination of more layoffs and additional cost-cutting initiatives -- which are expected to slash another $3 billion from its fiscal 2023 budget -- will, in his view, better position Meta to withstand the downturn, from which it will emerge a leaner, more nimble company. If his research is on the mark, the stock could surge by 52% in the next 12 to 18 months.
Meta Platforms isn't the screaming buy it was just a few months ago, but trading at less than 4 times next year's sales, its valuation is still far below the 7.9 price-to-sales ratio it averaged over the past five years.
Given its multiple catalysts, discounted stock price, and strong endorsement from Wall Street, now might be a great time to buy Meta Platforms in advance of the strong rebound to come.
