Wall St eyes earn­ings sta­biliser af­ter FAANG stocks wob­ble

The Star Malaysia - StarBiz - - Foreign News -

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

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