Latest / Stock Picking with Fexingo: Individual Equities, Research, and Building a Concentrated Portfolio / Meta's 8 Percent Drop and the Case for Contrarian Buying
Transcript
- Lucas: So Meta's down eight percent over the past five sessions, and you have to wonder if that's the market telling us something or just the AI trade taking a breather. Luna: Eight percent in a week is a big move for a mega-cap. What's driving it? Lucas: It's a mix. You've got the Fed minutes from Wednesday showing officials saw the need for a rate hike if inflation doesn't cool, and that's rattling the whole growth complex. But Meta's drop is sharper than most. The Nasdaq is down two point two percent over the same stretch, so Meta is underperforming by a wide margin. Luna: Is it profit-taking after a big run, or is there something more fundamental? Lucas: I think it's mostly profit-taking and positioning. Meta had one of the strongest runs in the AI trade, and when the macro mood shifts, the names that went up the most tend to come down the most. But you also have lingering regulatory headlines, and those tend to create a fog around the stock even when the business is executing. Luna: So for a stock picker, is this a buying opportunity or a falling knife? Lucas: That's the question. Let's start with the numbers. Meta's price to earnings ratio is still reasonable for a company growing at the pace it is. It's not like you're paying 2021 multiples. The business is generating massive free cash flow, and it's still investing heavily in AI infrastructure, which is a long-term bet, not a quarter to quarter one. Luna: But the market seems to be punishing that spending right now. Microsoft is down two and a half percent this week too, and NVIDIA is down three and a half. Lucas: Right, and that's the rotation. If the Fed is serious about another hike, the whole duration-sensitive part of the market gets hit. But here's the thing: for a concentrated portfolio, you don't need to catch every dip. You need to be confident in the business quality and the valuation you're paying. Luna: So walk me through how you'd actually evaluate Meta right now. What would you look at? Lucas: First, I'd look at the core ad business. It's still growing, and it's funding all the AI experiments. Second, I'd look at the AI investments — are they showing up in engagement or ad targeting? Third, I'd look at the regulatory environment, because that's the one thing that could actually impair the business model. Luna: And what's your read on the regulatory side? Lucas: It's a cloud, but it's been a cloud for years. So far, it hasn't materially dented the economics. The bigger near-term risk is macro — if rates go up, the multiple compresses. But that's true for every growth stock, not just Meta. Luna: So you're not scared off by the eight percent drop? Lucas: No, but I'm not rushing in either. The key is to have a thesis. If you believe Meta's AI investments will compound for the next five years, a pullback like this is just noise. If you think the ad market is rolling over, then it's a warning. I lean toward the former, but I'd want to see the next earnings report confirm that engagement and ad pricing are holding up. Luna: It's interesting how differently this plays out versus something like ExxonMobil, which is up five and a half percent this week. Energy is having a moment while tech gets hit. Lucas: And that's the value of a diversified, but still concentrated, portfolio. If you're all in on AI, weeks like this are painful. But if you've got a couple of energy names or even a defensive like Pfizer — which is up four point seven percent — you're not staring at red across the board. Luna: So the lesson is don't put everything in the hottest trade? Lucas: Exactly. And it's not about being cowardly. It's about respecting that the market can turn quickly, especially when the Fed is hawkish. You want to own businesses you understand, at prices that give you a margin of safety. Luna: Speaking of understanding businesses — I've been thinking about how the Fed minutes are affecting the whole market. The Dow is down one point three percent, the S&P down one point four. It feels broad, but the Russell is down two point three, so small caps are getting hit harder. Lucas: That's typical for a rate-hike scare. Small caps are more rate-sensitive because they rely more on floating-rate debt. So you see that divergence. For a stock picker, that might actually create opportunities in high-quality small caps that are being sold off indiscriminately. Luna: But it also makes you wonder if the Fed will actually follow through. The minutes are just a snapshot. Lucas: Right, and the market is trying to price that uncertainty. The fact that the S&P is down but not in freefall suggests investors are cautious, not panicked. That's a healthy sign, actually. Luna: So back to Meta — if someone wanted to add it to a concentrated portfolio, how would they size the position? Lucas: I'd say it depends on their conviction and their existing exposure. If they already have a lot of tech, maybe they don't need more. If they've been underweight, this could be a chance to bring it up to target. The key is to set a target allocation and stick to it, not to chase based on short-term moves. Luna: That's a disciplined approach. And I think that's something we talk about a lot on this show — the importance of process over prediction. Lucas: Absolutely. And that's actually a good reminder of why we can do this show the way we do — no ads, no noise, just honest analysis. A handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that's literally what funds making this many of these episodes. So if you find these conversations useful, that's a low-key way to keep it going. Luna: Yeah, and we appreciate every one of you who does. It lets us stay independent. Lucas: But let's get back to the trade. So if you're looking at Meta, what would change my mind from 'this is a buying opportunity' to 'this is a value trap'? Luna: I'd watch for a few things. One, if the ad business starts decelerating sharply. Two, if AI spending keeps ballooning without any clear return. Three, if regulatory actions actually start to threaten the core platform. Any of those would make me question the thesis. Lucas: Good checklist. And I'd add one more: if the stock keeps falling even after good earnings, that's a sign that something else is going on. But we haven't seen that yet. So for now, I think it's a quality business at a reasonable price, and that's what I look for. Luna: So the eight percent drop is more of a gift than a warning, in your view? Lucas: I'd say it's a reminder that the market doesn't go straight up. And for those who have done their homework, pullbacks are how you build wealth. Just make sure you're buying because the fundamentals are solid, not because the price went down. Luna: That's a good note to end on. Any final thoughts on where to look next? Lucas: I'd keep an eye on the small-cap space. The Russell's down two point three percent this week, and that kind of indiscriminate selling can create real bargains if you're selective. But that's a conversation for another day.