3 Tech Trades to Bet on ‘FANG’ Stocks in 2018

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tech stocks to buy - 3 Tech Trades to Bet on ‘FANG’ Stocks in 2018

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The technology sector started the year with a bang. The PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ) is up 7% in two weeks. Some “FANG” members set new all-time highs even into political uncertainty. The bulls remain in control and when they sell out of a group they roll into another. For now, long is the easier trade than short. Therefore dips in tech stocks, when they happen, are shallow and short.

The premise of this bull has been the “Trump trade.” So far it has been in concept only, but last week Apple Inc. (NASDAQ:AAPL) broke news that made it tangible. It announced that it will take the tax advantage on overseas cash and invest billions into the U.S. economy and its employees. So the bulls should get even more comfortable and they will need it given the political shenanigans that have recently occurred.

Growth is here to stay, and this time it is globally synchronized. We see evidence of this every day. Consider Boeing Co (NYSE:BA), which is up 19%, and Caterpillar Inc. (NYSE:CAT), which is up 7% since the new year. This is on top of massive ongoing rally already.

Markets are at all-time highs, but they are not too expensive. Most quality stocks are still reasonably priced. AAPL’s price-earnings ratio is under 20. Most banks sell near their book value. Growth stocks like Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) trade under 40 and considering the growth they deliver, they are not bloated. They have real earnings with tons of potential profit centers in the works so the speculation is realistic.

So today I want to reload long a strategy that has worked for over a year. I will use no money out-of-pocket and will build a moat around my risk. Essential to my strategy is that I am willing to own shares in these tech stocks but at a discount from current levels.

Today I choose to bet on three giant tech companies that have changed many of our lives. We now know them as FANG minus Netflix, Inc. (NASDAQ:NFLX). There I have long-term fundamental concerns.

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Mega Tech Stocks to Buy in 2018: Alphabet Inc (GOOGL)

Google — the “G” in “FANG” — is a cash-cow. I personally use them all day, including the new hot arena of voice controls. In addition, they have several platforms with more than a billion users each just waiting with tons of potential to generate more cash.

I don’t hear much of critics who called for the risk of the click advertising. Management is confident in its commitments and that raises my comfort trading their stock. GOOGL is now firmly in several important industries, including video and self-driving tech. I bet there will be a huge income stream from licensing their smart assistant technology.

It is likely that most of our appliances and computers will are be voice controlled in the next few years. I am willing to own it if it corrects, yet I will still structure my trade to make room for roadblocks in the next few months.

Sell the GOOGL March $985 put and collect $3 to open. Here I have a 90% chance of success. GOOGL can fall 13% and I would still retain max gains. If margin requirement is an issue, I would sell the $1010/$1000 spread for a 10% yield on risk instead.

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Mega Tech Stocks to Buy in 2018: Facebook (FB)

Facebook Inc (NASDAQ:FB) whic is the “F” in FANG has a similar value proposition as GOOGL from a P/E perspective. It suffered a mini-correction recently so I like it even more here. The Investors feared management’s recent announcement of a change in the way they display ads. But with over a billion fully engaged users I am certain they will figure it out in the long run.

Technically the recent dip is testing a pivot zone just above $174 per share. I am brave enough to bet that support will ultimately hold and that this too shall pass.

Most of my friends and family are completely engrossed in its ecosystem. I know this is a term usually associated with AAPL but I know dozens of people of have thousands of pictures on FB and they won’t even think about ditching the platform. It would take a colossal snafu from management to ruin such a beast of a company.

Nicolas Chahine is the managing director of SellSpreads.com.

Sell the FB March $155 put naked and collect $1. This bullish trade has an 85% theoretical odds of success. Otherwise, I would accrue losses below $154. I am comfortable with that given the size of the buffer and the support below.

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Mega Tech Stocks to Buy in 2018: Amazon (AMZN)

The “A” in “FANG” is Amazon.com, Inc (NASDAQ:AMZN). Critics have tried to short it for over a decade. They got decimated. This is the ultimate growth company. I consider it as a perpetual start-up that never quit being one. Its CEO Jeff Bezos is a daring genius who thinks big and delivers even bigger. They are master at using margins to build growth. Shorting this one continues to be financial suicide.

This is not Netflix. Amazon stock grows but doesn’t burn cash. Besides, they’ve shown Wall Street that they can dial up the margins when they want to. With Whole Foods, they now have a foot on the street and competitors should be worried. There is no financial engineering here; if they borrow it is to grow!

There will be another new income stream for AMZN from licensing their “Alexa” product. I bet that we will start to hear of cash generated from installing Alexa into cars and other household items in the same way as Google products. The only difference is that Amazon seems to have the first-mover advantage.

Sell the AMZN March $1070 put and collect $5 to open. There is only a 10% theoretical chance of failure. This is a 17% buffer zone from here. If margin requirement is an issue, I would sell the $1085/$1080 spread for a 10% yield on risk instead.

Ultimately, regardless of how careful I am, investing in stocks is fraught with danger, so I never risk more than I am willing to lose

Get my newsletter for free here. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on twitter and stocktwits.


Article printed from InvestorPlace Media, https://investorplace.com/2018/01/3-tech-trades-stocks-to-buy-fang-stocks-in-2018/.

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