Morgan Stanley is betting big on growth in the online space. The firm on Thursday named Google parent Alphabet, Facebook and Pinterest as three stocks that will benefit from a 20% increase in online advertising next year.
Those stocks have underperformed this week, though, as investors dumped growth tech names in favor of value. As of Thursday’s close, all were negative since Monday, compared with a nearly 1% gain for the S&P 500. Quint Tatro, president of Joule Financial, sees the pullback as an opportunity to pick up two of these stocks at a discount.
“Two favorites out of the three mentioned are Google and Facebook,” Tatro told CNBC’s “Trading Nation” on Thursday. “These are companies with Teflon balance sheets. Facebook has zero debt. Google only has a little bit. … We have an environment where businesses are going to have to get extremely creative to reach consumers. They’re going to want to meet them where they’re at, they’re online.”
Tatro acknowledged the concern over high valuations but countered that these stocks will outperform over the long term, even at above-average price-to-earnings ratios. Both have risen more than 30% in 2020. Facebook trades at 27 times forward earnings, and Alphabet at 29 times — both higher than the 22-times multiple for the S&P 500.
“We think these are long-term staples in any portfolio. And when you get a bargain, when you get a pullback, you pick them up, and you just keep adding on dips,” said Tatro. Bill Baruch, president of Blue Line Capital, agreed that these two stocks should be a part of any portfolio. For investors looking to jump in, he laid out key levels that could suggest a buying opportunity.
“I don’t like chasing the markets and I think there’s good levels to look at in buying. I think the buy zone for Google comes in right about $1,650 to $1,550. That aligns with the trend line as well as the previous high going back to last February, so I think you want to look into those areas, buy the pullback,” Baruch said during the same “Trading Nation” segment.
Alphabet closed just below $1,743 a share on Thursday. Shares would need to fall another 7.5% to reach the high-end of his buy range. For Facebook, Baruch said $250 to $275 marks a buy range.