How to Win the 'War on Regulation'
Editor's note: It's time to start preparing...
Deregulation across the market will be a vital component of President Donald Trump's agenda.
According to Joel Litman – chief investment officer at our corporate affiliate, Altimetry – this trend could open the door for a slew of undervalued buying opportunities.
In today's Masters Series, adapted from the February 12 issue of the free Altimetry Daily Authority e-letter, Joel details how you can reap the benefits of Trump's "war on regulation"...
How to Win the 'War on Regulation'
A year after going public, Facebook looked like a fad...
The company started off strong enough. In October 2012 – five months after its initial public offering ("IPO") – it became the first social media platform to reach more than 1 billion users.
It had also just purchased photo-sharing app Instagram. (We now know how this helped Facebook compete with platforms like TikTok years later.)
But the market didn't understand Facebook's potential in the early 2010s. Shares fell 30% in its first year as a public company.
Folks, a lot of investors quickly lost hope in the social media giant's early days. But those who stuck around were rewarded. Shares of Facebook – now Meta Platforms (META) – are up an incredible 1,800% since its IPO.
And as we'll explain, a crucial change in today's market could lead to a steady stream of similar opportunities... for those brave enough to get in early.
Meta used to rely on advertising for nearly all of its revenue...
The company collected mountains of user data (and it still does). It used that data to offer advertisers a better, more targeted experience.
In other words, advertising on its platforms promised better returns. Meta was even getting business from Big Tech titan Apple (AAPL).
And yet, you wouldn't have known it if you looked at Meta's financials.
User growth was slowing, especially among young adults. Even worse, as-reported return on assets ("ROA") was an abysmal 3% in 2012 – the same year Facebook went public and crossed 1 billion users.
That's only a quarter of the 12% corporate average. And it's half of what most companies need to cover their costs.
While it got better from there, it wasn't by much. As-reported ROA improved to 11% the next year. But it still didn't beat the corporate average for the next three years.
The problem was, Meta's financials were misleading investors...
It wasn't the company's fault. And it wasn't investors' fault, either.
Like all public companies, Meta was – and still is – required to follow something called generally accepted accounting principles ("GAAP").
If you don't know, GAAP is a set of standardized metrics for reporting financial results. But those metrics often mask the realities behind a business... to the upside or the downside.
That's why at Altimetry, we rely on something called Uniform Accounting. In short, we apply more than 130 adjustments to cut through the "noise" of GAAP.
In Facebook's case, the as-reported numbers made it seem like a middling business. In reality, it was anything but...
My team and I wanted to see how the market's view stacked up against reality. So we ran the same financial results through Uniform Accounting.
We were shocked by what we saw...
The year Facebook went public, its Uniform ROA was already triple the corporate average.
And it managed to keep profitability around those levels for the next several years. Take a look...
Facebook's plan to become an advertising powerhouse wasn't just a pipe dream... It was already happening. Investors just couldn't see it yet.
We knew it was only a matter of time before the company's success became clear to everyone. So we recommended Facebook to investors at our institutional arm, Valens Research.
By the time we told them to sell the stock in 2021, it had risen 1,350%.
But because of as-reported accounting, too many investors missed out on those incredible gains.
For too long, the market has been forced to accept misleading GAAP financials...
As-reported accounting isn't useful for investors... It's useful for accountants.
Because this kind of accounting is supported by the U.S. Securities and Exchange Commission, it's what investors see, too.
But that might be about to change...
President Trump is waging a war on regulation. If he gets his way, companies may soon be able to report more accurate numbers alongside the GAAP metrics.
Folks, we expect these changes to take place sooner rather than later.
And when they do, investors will have more options than ever when it comes to analyzing stocks...
It's time to start preparing.
Regards,
Joel Litman
Editor's note: Many investors missed out on Facebook's rise in the early 2010s. But they'll have a shot at similar gains as Trump's deregulation agenda plays out.
His efforts to get rid of "burdensome regulation" could potentially trigger triple-digit upside in a group of little-known stocks.
So Joel's team put together an urgent presentation covering what to expect... Get the full story here.