The so-called FANG stocks have led the huge rally in tech over the past few years. Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) have a market cap of about $2.5 trillion. Over the past three years, the group has gained over 150%.
Indeed, the FANG stocks can move markets, and sentiment. And they did exactly that in the second quarter, albeit not necessarily in one direction. If an investor sees the FANG stocks, and perhaps Apple (NASDAQ:AAPL), sometimes lumped into the ‘FAANG’ category, as leading the markets, it’s worth considering where all four stocks stand at the moment.
It seems fitting that in a market near all-time highs but facing external risks, the four most followed stocks in the market offer mixed news as well. With that said, here’s what’s going on with each FANG stock:
FANG Stocks to Watch: Facebook (FB)
Facebook stock looks very different than it did just a month ago. FB entered last month’s Q2 report trading at all-time highs. The Cambridge Analytica scandal seemed all but forgotten. FB stock still looked reasonably cheap at $218 the day before the release, and it seemed to have more room to run higher.
Then the bottom fell out. Facebook stock fell nearly 20% after its Q2 report, setting a record for the largest one-day market cap loss in history. The issue wasn’t necessarily Q2 numbers — they were fine — but management’s outlook for slowing user growth and rising costs.
Facebook stock now looks very different. FB has gained just 2% so far in 2018, and 7% over the past twelve months. A 20x forward price-to-earnings multiple (backing out net cash) doesn’t look quite as attractive if earnings growth is headed for a plateau. And the incredible user base here — over 2 billion — now looks like it could be a ceiling on growth, rather than a sign of Facebook’s immense reach.
Facebook did rally, but even that rally has faded lately. InvestorPlace contributor Nicholas Chahine argued the post-earnings sell-off was an overreaction, and I’m sympathetic to that argument. But it might be wise to let the dust settle here.
FANG Stocks to Watch: Amazon (AMZN)
On the other hand, Amazon has had no such worries. The only question with Amazon stock, it seems, is just how much higher it can go. AMZN stock is up 62% just this year alone — a simply incredible move.
To put the move into perspective, understand that Amazon has added $355 billion in market value in seven and a half months. That is equal to the entire market cap of Johnson & Johnson (NYSE:JNJ), the 11th most valuable stock in the U.S. market. It’s enough to buy Netflix twice (including debt) and still have almost $50 billion left over.
I’ve been a longtime bull on AMZN, but even I wonder just how much is left. Indeed, I argued last year that at some point AMZN should be the world’s most valuable company, and it’s already less than 10% behind Apple on that front.
But, given the plunges in Facebook and Netflix of late, it’s hard not to wonder if AMZN might not be up for a post-earnings pullback itself.
FANG Stocks to Watch: Netflix (NFLX)
Netflix sits in an interesting spot at the moment. NFLX stock got hammered after Q2 results, and it has dropped about 19% from June highs. But in a sign of just how big a rally NFLX had, the stock still is up 99% over the past year and 78% in 2018.
Meanwhile, the stock seems to have found its footing over the last few weeks. Q2 subscriber growth was disappointing, but expectations had also run rather high. NFLX isn’t cheap at around $340, but there is a chance for the stock to “reset” heading into Q3 numbers in October.
But from a long-term perspective, I continue to believe that Netflix stock will come down to the success — or failure — of its content strategy, as I wrote last month. Netflix is spending billions this year to build out its library of content that will be monetized, essentially for free, for years to come.
If those investments pay off, Netflix’s growth potential is enormous. If they don’t, rivals like Disney (NYSE:DIS) and Amazon could chase the company down. Q2 suggested that Netflix’s new original offerings might not be grabbing as many eyeballs as hoped … and that’s not just a near-term problem.
Fang Stocks to Watch: Alphabet (GOOG)
Alphabet somehow seems like the quietest stock of the group, which is hard to do for a company with an $870 billion dollar market cap. Bears and skeptics rant about the excessive valuations applied to NFLX and AMZN. Facebook’s political travails became a national story. Yet GOOGL stock just seems to grind higher, as the core search business continues to grow at impressive rates.
I still think that reliance is somewhat dangerous, though I’ve also been pretty much dead wrong on GOOGL stock for some time now. And the good news for Alphabet is that the non-advertising businesses — notably self-driving car unit Waymo — are starting to grow nicely.
Meanwhile, GOOGL still isn’t that expensive, trading at about 23x 2019 earnings-per-share estimates backing out its cash hoard. Back out early stage losses from “other bets” like Waymo and the multiple is even lower. I personally still see risks, but clearly the market disagrees. And out of all the FANG stocks, Alphabet may in fact be the best-positioned to drive further upside.
As of this writing, Vince Martin did not hold a position in any of the aforementioned securities.