Wall St eyes earnings stabiliser after FAANG stocks wobble
NEW YORK: Wall Street is hoping that first-quarter earnings growth and corporate forecasts are strong enough to bring the FAANG group of stocks back into favour and take the spotlight off worries that caused the recent sell-off in the high-flying group.
With valuations below recent peaks, the group – comprising Facebook, Amazon.com, Apple Inc, Netflix and Google parent Alphabet Inc – could get some relief if the companies beat, or at least meet, Wall Street estimates.
Shares in the group, which led the S&P 500 to record highs in January, often trade together. They were pummelled late in the quarter on worries about a data privacy scandal at Facebook and US President Donald Trump’s public criticism of Amazon.com. On top of this, fears of a trade war with China escalated during the quarter.
For the group, analysts expect average first-quarter year-overyear earnings growth of 25.8%, up from 12.4% growth in the fourth quarter and a 12.8% increase a year ago, according to Thomson Reuters data.
“All we’re getting now is negative news... once we start to see the numbers, you’re going to see a bigger spotlight on the success these companies are having,” said Daniel Morgan, portfolio manager at Synovus Trust in Atlanta, which holds shares in the FAANG stocks.
Morgan said he was in a waitand-see mode until after the first report from Netflix, which is due to be issued today.
Analysts expect Netflix earnings growth of 59% and revenue growth of 39%, according to Thomson Reuters data.
The entire group was hurt by fears that Facebook and other internet firms including Google would face onerous regulations or slowing advertising revenue growth after Facebook said nearly 87 million of its members’ personal data was improperly leaked.
Facebook fell almost 24% below its early February record to hit US$149.02 on March 26, its lowest point since July last year, due to the scandal. Google had fallen almost 18% below its late January record by March 28.
Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia said the US$76mil Chase Growth fund cut its Facebook investments to 1.8% from 3.1% of its portfolio due to the scandal. Tuz may stay on the sidelines until there is more clarity on Facebook’s prospects.
“If fundamentals remain strong with usage staying strong and the company doesn’t get hit with any severe fines or regulations we might very well buy again,” said Tuz, whose firm also owns Amazon. com, Apple and Google shares. “We feel good about three out of the five FAANGs – Amazon, Apple, Google,” he said.
Amazon.com stock was hurt by criticism from Trump, who said he would take a serious look at what he claimed were the online retailer’s unfair advantages with taxes and shipping rates. It fell 16.3% between March 13 and April 4.
The broader technology sector was also hammered by fears of a trade war with China, a big source of revenue. Apple derived about 20% of its revenue from China in its fiscal year 2017. Investors seek details how big the financial risks are in the face of events such as a trade war, new regulations or a stronger dollar.
“The guidance will be more important,” said Robert Phipps, a director at Per Stirling Capital Management in Austin, referring to comments on quarterly conference calls about the potential financial impact of all these issues.
But Patrick Palfrey, equity Strategist at Credit-Suisse in New York is mainly focused on strong estimates for the sector, which has posted impressive growth “time and time again.” — Reuters
Optimistic view: Part of the trading floor of the New York Stock Exchange is seen here. Investors hope to see strong first-quarter earnings growth from the FAANG group. — AP