Market Uncertainty: Why Meta Platforms Stands Out for Investors
Recent weeks have presented significant volatility for investors, marked by dramatic shifts in the market. The Nasdaq Composite (NASDAQINDEX: ^IXIC) surged over 12% on April 9, propelling the index out of bear market territory. Yet, a subsequent decline on Thursday brought the Nasdaq close to re-entering that bear market status.
Historically, bear markets can offer lucrative opportunities for investors looking to make strategic choices, particularly for resilient companies. To guide your investment decisions during turbulent times, here are critical considerations before purchasing stocks, along with a look at why Meta Platforms (NASDAQ: META) remains a solid investment.
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1. Importance of Free Cash Flow
Bear markets can arise from various factors, including valuation drops, economic slowdowns, and recession fears. Presently, tariffs may elevate costs, reducing demand, diminishing spending, and raising the risk of recession.
Companies generating high free cash flow (FCF) and strong profit margins are better positioned to withstand economic downturns. Meta exemplifies such a company.
Meta’s suite of apps, including Instagram, Facebook, and WhatsApp, generates revenue primarily from advertising, which is high-margin due to low operational costs aside from employee salaries and platform management.
While the company is increasing its capital expenditures to bolster its artificial intelligence (AI) initiatives, it is also investing significantly in the Reality Labs division, focused on augmented and virtual reality products like Meta Quest. Nevertheless, these investments remain non-critical for the company’s core business.
Meta can make adjustments to maintain robust FCF during economic stress by curtailing spending on capital projects and reducing expenses in its Reality Labs division. In 2024, the company reported an impressive $54.1 billion in FCF on revenues of $164.5 billion, returning a substantial portion, totaling $30.1 billion, to shareholders through buybacks. Moreover, the introduction of a modest dividend last year signals its capital return commitment.
2. Evaluating Financial Health
Examining a company’s financial health is essential when considering growth investments amid a bear market. If a company’s operations heavily rely on debt, a drop in profits can make managing that debt increasingly challenging.
Meta Platforms, however, not only enjoys high profit margins but also maintains a robust balance sheet. As of the end of 2024, Meta had $43.9 billion in cash and cash equivalents coupled with $33.9 billion in marketable securities contrasted with $28.8 billion in long-term debt. This financial strength equips Meta to navigate economic cycles comfortably, enabling long-term investments and acquisitions.
3. Meeting Shareholder Expectations
Shareholder expectations also present a risk to consider. Growth stock valuations typically hinge on future potential rather than current performance, reflecting companies’ lofty price tags. Should future projections seem uncertain, investors may wait for clearer signals.
The recent higher interest rate environment has affected companies dependent on debt, and prolonged tariff periods may dampen growth expectations, resulting in more expensive valuations compared to medium-term earnings forecasts.
While assessing shareholder expectations is often abstract, for Meta, investors seem primarily focused on steady growth and high margins from its primary product suite. Given that Meta is priced at only 22.9 times trailing earnings and 26.5 times FCF, the influence of Reality Labs on valuation appears minimal. Any growth driven by AI developments would be an added benefit.
The capital returns program, including dividends like those offered by Microsoft, Broadcom, and Oracle, could enhance shareholder value. Although the yield isn’t significantly high, it serves as an additional avenue for returning capital to investors without compromising the investment thesis.
Why Meta is a Resilient Growth Stock
Meta emerges as a favorable growth stock for investors looking to enter the market during the Nasdaq bear phase. The company boasts a high-margin, cash-generating model following a record year. Should FCF experience a short-term decline, Meta can support its operations by scaling back on spending and buybacks.
In addition to a strong cash reserve that provides a buffer against economic downturns, Meta does not need to introduce revolutionary products or meet overly ambitious expectations. Continuously driving traffic and user engagement on its app family will attract advertising revenue.
Overall, Meta’s ability to manage the aforementioned risks provides a valuable framework for discerning promising investment opportunities in the current market.
Should You Invest $1,000 in Meta Platforms Now?
Before committing funds to purchase stock in Meta Platforms, consider the following:
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook, and sister to Meta Platforms CEO Mark Zuckerberg, serves on The Motley Fool’s board of directors. Daniel Foelber holds no positions in any mentioned stocks. The Motley Fool has positions in and recommends Meta Platforms, Microsoft, and Oracle. The Motley Fool also recommends Broadcom and has the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool’s disclosure policy can be found here.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
