Hello again dear community!

Since I'm in my rebalancing window after 6 months, I've been ruminating on a specific asset reallocation for a couple of weeks, and would like to know your opinion. :)

I'm thinking about closing my position at $META (+1,28%) with roughly a +30%, and move the money somewhere else. I'll try to bullet point my sell case.

PROS

• I think the share is quite fairly valued at ~490-525$, even if some analysts shoot a PT of ~600$ (I'm sure I'll be proven wrong, hindsight is always 20/20 after all).
• Meta's current valuation ratios are higher than historical 5Y averages across the board by ~10-15% average, except PEG, which is historically always been <1
• A lot of CAPEX is going into AI, but it's really unsure how and when this will translate into tangible metrics growth. The Street has historical beef with META regarding CAPEX: if expectations are not beaten consistently, I fear some retaliation coming. Additionally, Reels monetization improvements, which bolstered 2023 roaring comeback, are on a plateau, and the competition is getting tougher
• Capital structure shows a market cap of 1.27T compared to an enterprise value of 1.24T, which confirms fair valuation view from this POV
• Re-reading Q1 earnings call transcript, Q2 is expected to be softer by management. EPS revisions show a ~60% down trend for Q2
• Given the above, it looks like most positives about valuation, cash flow generation and margins (both of which are huge, not a sliver of doubt about that) are already priced in
• Therefore, the overweight on top of my two core ETFs (still building the desired %) that hold META, S&P500 $VUSA (+0,73%) (2.3%) and $JPGL (+0,43%) (equal weighted at 0.33% last time I checked) is not easily justified anymore in terms of alpha/momentum/premia generation compared to risk. I would still be on board to reap the eventual benefits, just not overweight. And move the money to another sector, given the current outlook for late summer/fall in rates and sector rotation (still unsure if the recent development is an incoming mass move or just an algo move)
• Last and probably the least meaningful point: lots of insider selling and no buying in the last months

CONS

• Despite CAPEX growth and AI monetization concerns, META will remain a cash cow, and able to buy competition at a whim (if antitrust allows).
• The above is supported by the enormous FCF growth, powered by Operating margin and Operating cash flow
• Impressions based ad monetization algorithm should retain its current growth in the next quarters, even if demand dwindles. After all, we are looking at >3 billion overall users, with a growth in the mid single digits range
• Despite high multiples across the board, META remains one of the least expensive Mag7, beaten only by Google. We could look more at sales-based valuation metrics than classical valuation metrics. In this case, META would be aggresively valued instead of fairly-valued (or for some, overvalued even)
• META's moat remains one of the widest, and it won't likely shift downwards in the next years
• Due to lowered expectations, we get a good beat in Q2 earnings report (31/07) that shoots the price upward, losing potential profits.
• Or a stock split announcement. We know how retail money loves stock splits and disregards common knowledge of "the underlying value is unchanged". Meta is a retail darling after all, as Nvidia. Look what happened there after the split
• Meta still is an AI developer. It's own LLM, Llama, is in constant evolution and being applied in some use cases. LLama is, also, one of the few open source LLMs. Meta is better directly positioned as an AI play than some others, no need to say more about the AI growth story.

As I said, I'm quite convinced of the sell case with my actual portfolio positioning. I'm not quite convinced about the timing (now or after earnings), but I'm trying to not think about timing the market and maximising profits.

The next step is: where to move that money? To me, there are three options:

• Open a position in $BRK.B (+0,67%) and keep saving that long term. It's basically a value ETF posed to keep going forever, even after Buffet
• All into $JPGL (+0,43%) to keep building it up to desired % f portfolio
• All in Small Caps, expanding my planned allocation by 2% for FY2024 ($ZPRV (+0,77%) & $ZPRX (-0,11%) ) considering macros and recent market rotation

What are your opinions on the matter? Would love to discuss it here in the comments :)

Have a nice Sunday!

Data sources

Data used in the analysis comes from https://seekingalpha.com/symbol/META and https://valueinvesting.io/META/