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How To Play Facebook's Epic Rise With Less Risk

By: Investor's Business Daily
Posted: 7/25/2013 7:04:00 PM
Referenced Stocks: FB;GOOG;PNQI;SOCL;SPY

Facebook ( FB ) shares beautified social media and internet ETFs in a productive session in the stock market today .

Facebook's 30% gap to 34.36 pushed Global X Social Media Index ETF ( SOCL ) up 4.93% andPowerShares NASDAQ Internet ( PNQI ) up 4.74%. The social networking Web site is the fourth-largest holding in SOCL at nearly 9% of assets and the third-largest holding in PNQI, accounting for 8% of assets.

Investors  very much liked how Facebook boosted second-quarter revenues by 53% to $1.81 billion and earnings by 58% to 19 cents a share.

How Much Analysts Like Facebook

Growth in mobile ad revenue offset a drop in desktop, showing how successfully the company adapted as usage shifted to mobile devices, Credit Suisse analysts wrote in a note Thursday. They raised their price target on shares from $31 to $36 while maintaining a neutral rating.

"Our bias remains positive given the company's unique position to capitalize on the movement of brand advertising dollars online, but we continue to believe that Facebook shares already reflect near-medium term benefits of both mobile monetization as well as FBX (Facebook Exchange), and therefore maintain our neutral rating on valuation," Credit Suisse analysts wrote.

The number of ads grew 43% year over year while the price per ad climbed 13%.

"Newsfeed ads were initially launched in third-quarter 2012, which implies that the company will be going into more difficult comps in the back-half," Credit Suisse wrote.

BTIG Research upgraded Facebook from sell to neutral, admitting it was wrong about the threat of competitorGoogle + ( GOOG ).

"The magnitude of Facebook's Q2 revenues and earnings 'beat' dramatically increases our expectations for 2013-2015," BTIG analyst Richard Greenfield wrote. "Even with growth expected to slow in 2014 and 2015, the base is so much higher than we anticipated exiting 2013. While we are lowering our 2013-2015 desktop ad revenue estimates as usage fades, our mobile numbers have risen dramatically and simply cannot be ignored."

Hoards of analysts raised their price targets on Facebook including Oppenheimer, Macquarie, Wells Fargo, Susquehanna, Jefferies, Needham, BMO, JPMorgan, RBC, Evercore, JMP Securities, Cantor and Cowen; most rated shares buy, overweight or market outperform.

Stifel Nicolaus reiterated a buy rating and raised its price target from $29.00 to $38.01.

Goldman Sachs maintained a buy rating while lifting the price target from $40 to $46 Thursday morning.

Deutsche Bank rated buy, raising the price target from $37 to $43.

UBS rated buy, lifting the price target from $30 to $36.

Chart Action

SOCL and PNQI have rallied 28% and 31% year to date, respectively, vs. 18.6% for the SPDR S&P 500 ( SPY ).

Both ETFs trade high above their 50-day and 200-day moving averages, indicating strong uptrends. SOCL sports an IBD Relative Strength Rating of 71 and an A- Accumulation/Distribution Rating, which means it's outpaced 71% of the stock market in the past 12 months and institutions are heavily buying shares.

PNQI has equally healthy ratings with an RS Rating of 77 and an A/D Rating of B+.

Chasing Facebook shares after such a huge rise is risky as some big investors are likely to take some profits. SOCL and PNQI offer a diversified way to invest in the social media giant.

Another ETF That Likes Facebook

Market Vectors Wide Moat ETF (MOAT) has 5% of its holdings in Facebook. It invests in 20 companies that Morningstar believes has "sustainable competitive advantages" compared to their peers.

Follow Trang Ho on Twitter @IBD_THO .