Last week was a big one for Meta Platforms (META), the parent company of Instagram and Facebook.
On August 26, the company agreed to pay up to $18 billion to settle a landmark lawsuit brought by a coalition of state attorneys general led by California, Colorado, New Jersey and Kentucky.
That sounds bad, right?
Wrong!
I can promise you that Meta founder Mark Zuckerberg was thrilled to write that check. It amounts to roughly a single quarter’s worth of earnings, and the company will have 10 years to pay it out.
But more importantly, this settlement removes a potentially existential threat hanging over the company.
Had the case been decided by a jury, it’s entirely possible that Meta would have been effectively bankrupted… or at least kneecapped to the point where it would no longer be able to run its business.
Instead, Meta gets certainty.
And investors clearly liked that trade-off.
That’s why META shares finished the week higher.
We’ll dig into that in a minute. First, let’s take a look at last week’s winners and losers.
Meta’s sector led the market last week.
The State Street Communications Select SPDR ETF (XLC) finished 1.4% higher, followed closely by the State Street Technology Select SPDR ETF (XLK), which was up 1.3%.
Considering these two sectors account for nearly half the S&P 500 Index’s market cap, it’s not terribly surprising that they pulled the benchmark higher.
The S&P 500 finished the week up 0.5%.
For most of the rest of the market, the week was a lot less cheerful.
Eight out of 11 sectors finished lower, with the State Street Health Care Select SPDR ETF (XLV) bringing up the rear, down 2%.
Today, we’re going to take a look at both the communications and health care sectors to see whether last week’s moves have created any buying opportunities.
What Sent Communications Higher?
We’ll start with communications. As I do every week, I ran my customary screen of the biggest movers in the sector that were still within 10% of their 52-week highs. The idea is to look for solid, market-leading stocks that are getting stronger.
Unfortunately, with all of the volatility we’ve had in the sector, there weren’t many within 10% of their highs, so I relaxed that criteria.
Here’s what I came up with:
Meta was the biggest gainer, tied with Paramount Skydance (PSKY) with a 5.1% gain on the week.
Meta didn’t soar last week in spite of its legal settlement. It rose because of it.
The allegations against the company were serious. The plaintiffs accused Meta of improperly capturing data from minors, designing its platforms to be addictive to children and misleading the public about the safety risks involved.
The company faced a potentially crippling judgment and major restrictions on its ability to do business.
Instead, it essentially got a slap on the wrist… and a requirement to better regulate minors’ accounts. Among other things, it limits teenagers’ use to just two hours per day.
It remains to be seen how effective the restrictions are. Teenagers have been finding ways to break rules for as long as teenagers and rules have existed.
But with the legal risk neutralized for now, might Meta’s stock be worth a look?
No.
Meta rates an abysmal 24 out of 100 on my Green Zone Power Ratings. My system sees the stock as risky… and suggests that the recent bounce won’t be sustainable.
It’s not alone with its “Bearish” rating. Six of the nine stocks on the list are rated “Bearish,” and another two are rated “Neutral.”
The only “Bullish” rated stock was Rupert Murdoch’s News Corp (NWSA), the parent company of the Wall Street Journal, the New York Post and several other media brands.
With a contentious midterm election coming up, media companies will likely enjoy an engaged user base for the remainder of the year.
Any Value in Health Care?
Two weeks ago, health care enjoyed a fantastic bounce on the back of Moderna (MRNA) and Pfizer’s (PFE) major breakthrough in cancer treatment.
Unfortunately, that enthusiasm didn’t carry over into last week. Health stocks were the worst performers of the 11 major industrial sectors that make up the S&P 500.
After a rough week like that, might there be some opportunities?
Let’s take a look.
I ran my customary screen of the sector’s biggest losers for the week that are still trading within 10% of their 52-week lows. The idea is to find beaten-down gems that look poised to recover.
Well, there weren’t many big losers from last week that were anywhere close to their 52-week lows. All of the biggest decliners are enjoying an otherwise fantastic year.
Here’s the list:
So, what’s the story?
Any dips worth buying?
Of the major decliners last week, only Regeneron Pharmaceuticals (REGN) rates as “Bullish” on my system. The rest are either “Bearish” or “Neutral.”
Regeneron may not have ended cancer, unlike Pfizer and Moderna. But the biotechnology company is doing interesting work with its development of antibody-based medicines.
Regeneron does the same thing in the laboratory. Its therapies can block harmful processes, such as preventing an inflammatory signal from triggering eczema or asthma. They can also flag cancer cells for destruction by the immune system.
I’d also point out that Regeneron’s therapies are wildly profitable. The company rates an exceptionally “Strong Bullish” 98 on its quality factor.
To good profits,
Adam O’Dell
Editor, What My System Says Today
