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Tech Profits: Looking Beyond the FANG Stocks

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FANG stocks have dominated financial headlines and rewarded shareholders for several years now. Most people have heard of the “FANG” stocks. The term was popularized by a TV personality when asked about his top picks for investors.

Tech Profits: Looking Beyond the FANG Stocks
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The “F” stands for Facebook Inc (NASDAQ:FB), at least that much is certain. But the other letters are somewhat interchangeable.

In the original version of FANG, “A” stood for Amazon.com, Inc. (NASDAQ:AMZN), but more often I am hearing about how Apple could also be an “A” stock. Then there is the “N”, which stands for Netflix, but more recently NVIDIA Corporation (NASDAQ:NVDA) has been a fan favorite.

Finally that “G” stock is commonly referred to as Google, but following the inception of FANG, Google changed its name to Alphabet Inc (NASDAQ:GOOGL), making that “A” a crowded spot!

Overwhelming Popularity

The overwhelming popularity of FANG has left many solid tech stocks in the dust. So many good tech names just don’t get the attention they deserve.

This is represented by the volume of shares traded in the FANG names and the volume of non-FANG names. There is a whole universe of stocks that do not fit in the narrow FANG category.

Supplier Plays

A good way to think about all the other tech names out there is to choose just one of the big names and then look at their suppliers. The logic is easy to follow: if the biggest player is doing well, then the smaller suppliers are direct beneficiaries.

Because the suppliers are much smaller than the bigger companies they serve, they can see outsized moves. Think of it this way, it takes a lot to move a $100B company by twenty percent. The smaller supplier, however, is likely only a fraction of that size and could easily double or triple on that move.

There are plenty of suppliers to the FANG stocks. Picking the right ones is the challenge. A good rule of thumb is to look for the suppliers that have the strongest margins. Those suppliers tend to have the best bargaining position when it comes to working with the big boys.

A good example is Ultra Clean Holdings Inc. Massive tech companies need microprocessors to power their servers and devices. Ultra Clean helps design, test and clean the chips before they are sent off to customers. UTCC has soared +298.5% YTD on strong demand for these services.

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Article printed from InvestorPlace Media, https://investorplace.com/2017/10/tech-profits-looking-beyond-fang-stocks-ggsyn/.

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