FANGS lose their bite
e:
It’s been a horrid week for the FANG stocks (Facebook, Amazon, Netflix and Google parent Alphabet). Their combined market cap fell from $2.5-trillion in July to $1.93trillion on Monday. Scratch that. With each company’s share price down between 14% and 24% in October, it’s been a horrid month for the high-growth, high-momentum quartet of stocks. They’re facing negativity that they won’t put out the kind of sales growth numbers needed to support the huge rally in their stocks.
Remember that in the past few years, these stocks have made huge contributions to the S&P 500’s gains, so a prolonged downturn would spell disaster for the market — already stoked by anxiety over the Trump administration’s trade war with China.
Out of interest, people betting against the FANG cohort made $1.6bn in paper profit last week. Data from financial technology company S3 Partners shows they were among the 10 most-shorted US stocks.
Amazon’s numbers missed the mark and its shares tanked 8%. According to Refinitiv data, estimates were for $57.1bn but quarterly net sales rose to $56.58bn from $43.74bn a year earlier.
This was actually Amazon’s lowest quarterly sales growth since at least the start of 2016.
And for the first time in at least two years, Alphabet missed analysts’ quarterly revenue estimates and reported continuing erosion of its operating For investors who don’t have the stomach for the fleshy valuations and risk that have essentially driven the FANGS’ momentum, there are tech stocks that are not as price-heavy. Think Visa, Mastercard and Paypal. Companies that underpin online shopping and mobile payments are touted to have outstanding growth potential.
I guess one could also go classic or vintage tech: Microsoft, Apple or Intel. All three have modest-ish valuations but still offer exposure to the industry’s higher-than-average growth rates (minus the thrill and peril).
There’s a cool video of Mad Money’s Jim Cramer arguing a twofold reason to buy “given-up-on stocks” like the FANGS.
He reckons they benefit from having very few ties to the Chinese market, with the use of Facebook, Netflix and Google’s services almost entirely blocked by the government there and Amazon facing a sprawling competitor in Alibaba.
Secondly, “the Federal Reserve is bent on squelching inflation wherever it can find it,” he said, referring to the central bank’s rate-hike agenda.
“When that happens, the companies with the highest p:e multiples are the ones that benefit,” he added.
Is this the bottom for the highgrowth quartet of stocks, one might ask. I think you need equal doses of fear and panic for that.
Right now we have fear, but not panic — well, not yet.