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Should Value Investors Buy Facebook (FB) Stock?

Distillate Capital recently released its Q1 2020 Investor Letter, a copy of which you can download below. The Distillate Capital’s U.S. Fundamental Stability & Value (U.S. FSV) strategy posted a return of -19.39% for the quarter (net of fees), outperforming its benchmark, the S&P 500 Index which returned -19.60% in the same quarter. You should check out Distillate Capital’s top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash. There weren’t a lot of funds who could deliver these kinds of returns without shorting the market or using aggressive put options.

In the said letter, Distillate Capital highlighted a few stocks and Facebook Inc (NASDAQ:FB) is one of them. Facebook is a social media and technology company. Year-to-date, Facebook Inc (NASDAQ:FB) stock gained 9.7% and on May 27th it had a closing price of $229.14. Here is what Distillate Capital said:

"The largest new positions are Facebook (FB) and AT&T (T). In each case, their shares underperformed the market while normalized forward free cash flow estimates held up better than those of the market overall, such that relative valuations became more attractive. Facebook in particular highlights the kind of opportunity that has become available recently. Against a market cap of near $480 billion, the company has net cash of over $50 billion and is projected to generate around $30 billion in free cash flow in 2021. For a company that is still seeing substantial growth, this provides a very attractive valuation and especially so given the company’s balance sheet strength and fundamental stability."

In Q1 2020, the number of bullish hedge fund positions on Facebook Inc (NASDAQ:FB) stock increased by about 8% from the previous quarter (see the chart here), so a number of other hedge fund managers seem to agree with FB’s growth potential. Our calculations showed that Facebook Inc (NASDAQ:FB) is ranked #3 among the 30 most popular stocks among hedge funds.

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