The new-school tech stocks that compose the widely talked about “FANG” stocks have had a great year, taking four of the top 30 performance spots in the Nasdaq 100 Index.
While these stocks have been on fire, the question remains — will they continue to outpace the rest of their technology peers?
Taking a look at the FANG stocks from our Behavioral Valuation approach suggests that while the trend is likely to remain their friend, the end of January may prove somewhat bumpy, as three of four of the FANG stocks find themselves on our “Crowded Trade” list.
This means that while the stocks may be good long-term holds, we are likely to see some “sell the news” activity after their January or February earnings reports, which are right around the corner.
Let’s take a look at each of these new-tech leaders…
Leading New-School Tech Stocks: Facebook (FB)
After years of struggling to figure out the secret to monetizing their massive user base, social giant Facebook (FB) has left everyone in their dust and continues to excel.
The fundamentals reflect Facebook’s dominance, as earnings have outpaced Wall Street’s expectations all of the last eight quarters and year-over-year revenue has averaged 53% for the same period.
Facebook stock has shot more than 30% higher year-to-date and rose just under 90% over the last two years, placing it within the top dozen performing stocks within the Nasdaq 100 for that period.
Of course, with performance like that, it’s too late to jump on the FB bandwagon right?
Maybe not — the bandwagon is looking pretty full of bullish investors, as 92% of the analysts with an opinion recommend Facebook stock as a buy. Historically, stocks that are heavily weighted with buy recommendations tend to start underperforming the market.
For now, the trend is your friend with Facebook shares. However, the first sight of a fundamental slowdown will result in some serious selling pressure hitting FB stock. We would continue to hold this new-tech name, but be very cautious when the next earnings season approaches on Jan. 27, as stocks that are heavy on buy recommendations tend to see a “sell the news” selloff after good or bad earnings results.
Leading New-School Tech Stocks: Alphabet (GOOG, GOOGL)
Like Facebook, Alphabet (GOOG, GOOGL) has been able to crack the monetization code, leaving all other search engine companies gasping for air in their dust.
The recent branding change suggests that the company is ready to make a larger push out of the search engine market and use their computing prowess to develop everything from cars to health tracking devices to fabrics (yes, fabrics).
Alphabet stock’s charts are supporting a long-term bullish trend with a forecasted price target of $800 during the first half of 2016. However, there is a near-term risk that GOOG stock is likely to retrace back to the $700 level before making that move.
This short-term weakness is based on the fact that the stock has overextended itself outside of its normal trading ranges. These situations almost always result in a “regression to the mean” which at this point would target $700.
From a sentiment perspective, like Facebook, GOOG is widely loved by the analyst community, as 94% rank the stock a buy. This adds some caution to the stock, as earnings approach on Jan. 28.
Until then, Alphabet stock is worth holding in your portfolio and adding if/when it hits $700.
Leading New-School Tech Stocks: Netflix (NFLX)
The fourth-highest one-year return in the Nasdaq 100 Index goes to Netflix (NFLX) stock, which has rolled up returns of over 140% since this time last year.
The online entertainment company continues to show strong signs of growth as they expand their business around the globe with success.
Netflix is one of those stocks that our Behavioral Valuation models have ranked bullishly all year, as the shares have fallen into the category of “underloved” by the analyst while exhibiting technical dominance over the market.
Put simply, the bandwagon is relatively empty, which means there’s room to run higher.
NFLX shares are in the process of testing their 50-day moving average, currently posted at 113.86. A successful test of this bullish trendline will result in another stage of the Netflix rally that will likely target $135.
Adding to the bullish argument for Netflix stock is the fact that the Wall Street analysts remain tepid towards the shares, with only 58% of those tracking the stock rating it a buy. This number will increase as shares break higher and those analysts rating NFLX shares a hold or sell begin to upgrade.
Leading New-School Tech Stocks: Amazon (AMZN)
While most think of Amazon (AMZN) as an online retailer, the reality is that the real growth in share value has come from the company’s dominance of the cloud computing business.
The company is growing 13 times faster than their closest competitor and account for more revenue in the business than their top four competitors combined (IBM, Salesforce.com, Google and Microsoft).
Amazon shares continue to blaze higher, returning more than 120% over the last year.
The charts for Amazon remain bullish, as it breaks to move above $700. A look at our more advanced charting shows support at the $640 level and a potential target of $750 before the first half of 2016 has concluded.
Sentiment towards AMZN shares suggests that the crowd hasn’t become overly bullish on the shares, which is good. 90% of the analysts covering Amazon stock have it ranked a buy, so there is a little room for upgrades to drive prices higher.
AMZN will report earnings on Jan. 29, meaning we are likely to see shares experience a “buy the rumor” rally into the end of January.
As of this writing, The Johnson Group did not hold a position in any of the aforementioned securities.
