Two Fidelity mutual funds to buy show potential to rebound a big share price plunge since Feb. 2 for Meta Platforms (NYSE: FB), formerly known as Facebook.
Market volatility has become a part of life in 2022 and Meta Platforms is gaining extra attention as one of the so-called FANG stocks, consisting of Meta Platforms Inc. (NASDAQ: FB), formerly Facebook; Amazon; Netflix Inc. (NASDAQ: NFLX); and Alphabet (NASDAQ: GOOGL). A big benefit of the two Fidelity mutual funds to buy is for investors to ride an eventual recovery in the market, while also spreading out the risk with a fund that holds an array of investments.
The volatility is exemplified by Meta Platforms’ surge of 17.6% on Thursday, April 28, after reporting mixed first-quarter results. The company beat consensus estimates on its earnings but missed doing so on revenue. However, its daily active users grew to rebound from a decline in the fourth quarter.
In contrast, Meta Platforms endured a rollercoaster-type plunge on Feb. 2, when it endured the largest single-day loss by a U.S. company in history. As the parent company of Facebook, Whatsapp, Instagram and Meta Quest (Oculus), Meta Platforms lost more than $230 billion in value, with its stock price dropping that day by over 25%.
Chart courtesy of www.stockcharts.com
Two Fidelity Mutual Funds to Buy Offer Rebound Opportunity
Several Fidelity mutual funds had large price drops on Feb. 2, when Meta Platforms began a series of dips that led to a low of $174.95 on April 27, compared to $233.89 on April 4 and $382.18 on September 7, 2021. With strong historical performance and expansive economic moats barring competitors’ entry into the market, investors could profit long term from buying Meta at its current deflated stock price or a mutual fund that holds a sizable share of FB.
The Fidelity mutual fund with the heaviest weighting in Meta is the actively managed Fidelity Contrafund (FCNTX), currently run by veteran manager Will Danoff. The $132 billion fund had a 9.66% weight in Meta as of Dec. 31, 2021. How did this stock price drop affect investors in the Fidelity Contrafund Mutual Fund? An investor with $10,000 in Fidelity Contrafund owned almost $1,000 worth of Meta stock based on the last reported data. The sharp decline on Feb. 2 would have shaved $250, or 2.5%, off that investment.
Two Fidelity Mutual Funds to Buy: Why Did Meta Platforms’ Share Price Drop?
This loss came on the back of three major developments that will impact Meta’s future operations. First, the company reported its first ever sequential decline in Facebook’s daily active users. Second, Meta has been impacted negatively by Apple’s new ad-privacy measures, causing Facebook’s CFO David Wehner to predict Meta would likely lose more than $10 billion in sales due to the new iOS rules, which limit customer tracking. Third, Facebook’s management is facing concerns about the company’s waning influence on younger generations.
Hence, many investors sold off the stock due to the belief that the growth projections that were baked into Meta’s past stock price are no longer valid. The selloff also may reflect the belief that government regulations and new privacy measures will continue to impact their operations in the future.
Yet, was this selloff too hasty? Meta Platforms is composed of Instagram and Facebook, two of the largest social media businesses in the world, alongside an internationally prominent messaging application, Whatsapp, that has accumulated over 1 billion users. Meta still reported nearly $40 billion in profit in 2021, up from $29 billion in 2020 and $19 billion in 2019.
Meta Platforms has faced threats of government regulations for many years, with its founder, Chairman and Chief Executive Officer Mark Zuckerberg testifying to Congress regarding the company’s operations. However, it still remains up to individual social media users to decide how their data is used. Consumers are often given the choice: use social media and surrender data privacy or don’t use social media. We see the majority of consumers opt for the first choice.
Fidelity Mutual Funds Hold Meta Platforms: Reasons to Invest
There are three main reasons why Meta Platforms could be a good investment in this current timeframe. First, its current market price has underperformed the overall market, making it cheap in comparison with its nearest competitors. For example, Alphabet (GOOG: NASDAQ), Google parent company, has a price-to-earnings (P/E) ratio of 23.78x, Apple (APPL: NASDAQ) has a P/E ratio of 27.15, and Snachat (SNAP: NYSE) has a negative P/E ratio as it loses money from its operations.
Meta Platforms has a P/E ratio of 15.07. This provides a cheaper way to gain exposure to the Communication Services and Tech Sectors for the average investor. This also has earned the company a 5-star Morningstar rating, given to companies whose stock is trading at a discount to its fair value price.
Second, its strong historical performance indicates the companies’ ability to consistently grow and provide returns for investors. Meta Platforms, formerly Facebook, is a veteran in the ad-revenue business, with its market capitalization of nearly $600 billion, it has the resources to adapt and weather economic and regulatory changes.
While Meta Platforms faces pressure from government regulation, the choice to use its social media services will always remain in the consumers’ hands. The average consumer now reports using social media for 147 minutes a day, an ever-increasing number through the years.
Third, Meta Platforms will continue to benefit from the economic moats between itself and other competitors attempting to enter the industry. The tech behemoth Google attempted to release the social media platform Google+ to rival Facebook’s influence, which resulted in losses and its eventual shutdown. Other competitors, such as Snapchat, lose money through operations each year, and are supported by external investment. Facebook and Instagram will continue to capture a large portion of the social media market, with Meta Platforms now expanding into virtual reality, seeking to expand its market share in that industry.
Two Fidelity Mutual Funds to Buy Following Meta Platforms Stock Price Drop
As mentioned above, the Fidelity mutual fund, Fidelity Contrafund (FCNTX) has a heavy weighting in Meta Platforms of 9.66%, enabling the fund to capture a larger percentage of the company’s potential stock price growth. It also provides downside protection due to its diversification among other stocks.
The fund has an expense ratio of 0.81%, and the investor gets the upside of strong management with Will Danoff’s 3-plus years of leadership. If you believe that Meta Platforms has the ability to continue growing and maintain cash flows, then this would be a great way to capture a portion of these returns, while gaining the benefit of diversification and management that comes with the fund.
FCNTX has slid 16.85% so far this year but jumped 24.36% in 2021, 32.58% in 2020, 29.98% in 2019, prior to dipping 2.13% in 2018.
Second of Two Fidelity Mutual Funds to Buy Is Fidelity Advisor New Insights Fund
The second Fidelity mutual fund that would most benefit from an increase in Meta Platforms Stock Price would be the Fidelity Advisor New Insights Fund (FNIAX), which has an 8.94% weighting of Meta Platforms stock as of December 31, 2021. This fund is also co-managed by WIll Danoff, and will be in the unique position to realize increased returns from a potential Meta Platforms’ stock price recovery. This fund holds around $22.5 billion in assets, with an expense ratio of 0.93%. It holds many large-cap growth stocks, with 24% of its assets concentrated in information technology.
FNIAX has dropped 17.38% since the start of 2022, but rose 24.28% in 2021, 23.64% and 29.15% in 2019, prior to a 4.42% dip in 2018. Nidhi Gupta now runs 40% of Fidelity Advisor New Insights’ assets – up from 20% in early 2022. Will Danoff now manages 60%.
The two Fidelity mutual funds to buy offer the potential to rebound from a resurgence in Meta Platforms, as well as other key holdings. Investors who expect the current market pullback to ease or reverse in the coming months may be willing to accept the risk and buy shares in the fund to ensure they own them before the recovery.