Motley Fool: Facebook is social titan

One look at Facebook’s (Nasdaq: FB) stock chart, and you could be forgiven for thinking that you’ve missed the boat. It has, after all, increased in value by more than 500 percent over the past five years. But it still has room to grow.

Ads generate 98 percent of Facebook’s revenue – and that revenue is growing, with the company reporting a 49 percent year-over-year jump in the third quarter of 2017, thanks to its increasing ad prices and running more ads. What’s more, it has about 6 million active advertisers on its Facebook platform alone, and that number is up 50 percent year over year.

The more ways Facebook can find to make money off its massive base of more than 2 billion monthly active users, the greater its potential. For instance, it recently added housing rentals in its Marketplace section. The company also owns the photo-sharing service Instagram and the WhatsApp messaging app, both of which are growing.

With its market value recently topping half a trillion dollars, Facebook’s growth rates can’t last forever. Even if they’re halved, though, they would still be strong. Meanwhile, net profit margins are ridiculously fat, recently topping 40 percent.

With its forward-looking price-to-earnings (P/E) ratio near 27 recently, give Facebook some consideration for your long-term portfolio. (The Motley Fool owns shares of and has recommended Facebook.)

Ask the Fool

Q: I’m in my 20s and contributing to a 401(k) plan, but should I invest additional money in CDs, too? – G.J., Wilkes-Barre, Pennsylvania

A: For most young people, CDs are not great investments – at least in the current environment of ultra-low interest rates. Even the best CD rates these days (which you can look up at bankrate.com) are puny. If you know you won’t need a sum of money for at least five years (and to be more conservative, 10 years), it’s likely to grow more briskly in stocks. Stocks have outperformed bonds in most years.

Five-year CDs, for example, recently sported an average rate of 2.2 percent. On a $10,000 investment, you would collect $220. Two-year CDs averaged about 1.6 percent, or $160.

You can get more income for your money from dividend-paying stocks. Verizon Communications, for example, recently sported a dividend yield of 5.2 percent (its annual dividend sum divided by its recent stock price). General Motors and Pfizer both yielded 3.6 percent, while Royal Dutch Shell yielded close to 6 percent.

Dividends are never guaranteed, but many companies have been paying them regularly – and raising them – for decades. Plus, on top of the dividends, the stock prices of healthy and growing companies will increase over time, too. CDs are good for short-term money, and for when you favor safety over growth.

Q: What is “Nasdaq”? – W.K., Chandler, Arizona

A: Created in 1971 as the National Association of Securities Dealers Automatic Quotation system, Nasdaq is now the largest electronic stock market in America. Shares of more than 3,600 companies (including Apple, Costco, Facebook, Microsoft and Starbucks), with a total market value approaching $10 trillion, are traded on the Nasdaq. Learn more at nasdaq.com.

My dumbest investment

My dumbest investment was more than a decade ago, when I learned of a company named Cree that was in the exciting business of making LED lighting that lasted longer and used less energy than traditional lights. Cree did not have any products out of the lab, but I was sure some company would bring its technology to market, so I bought a few hundred shares. Unfortunately, I did so a day before the company posted disappointing quarterly results, which sent the shares down 30 percent! Within a year, the stock was back at where it was when I bought it. I still like the company and believe in its technology, but I can’t bring myself to invest in it again because of my emotional scars. – J., Satellite Beach, Florida

The Fool responds: Many companies with exciting technologies or products can turn out to be terrific investments, but not all will. Companies need not only great products or services, but also demand for them, plus enough cash to produce and market them, just for starters. Many great technologies are around for years before they become widespread and profitable.

Cree is still around, making and selling chips for flat-screen TVs and mobile devices, among other things, but it’s had a tough year and has posted many losses in recent years. Put your emotions aside and don’t invest in it again unless you’re confident about its future.