A few quarters ago, everyone was fascinated with the FAANG stocks. And could you not be? The tech leaders saw massive returns as investors embraced growth stocks in a big way. But as the market has gotten a bit dicey and uncertainty abounds, the FAANG stocks have certainly lost their mojo. Pending regulation and increased scrutiny by governments haven’t helped either. These days, the group of Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOG) Google have become laggards rather than leaders.
But that doesn’t mean that all the FAANG stocks should be cast aside.
In fact, a few of them have very good long-term prospects. The story behind their growth hasn’t changed; it’s just the market sentiment. And in that, there’s now a huge opportunity for investors to buy some of the tech sector’s leaders at bargain prices.
Yes, some of the hype around the FAANG stocks has faded. But that’s not necessarily a bad thing. Over the long haul, the group of stocks still has plenty of gas left in the tank. And here are three of the FAANGs worth buying and never selling.
FAANG Stocks to Buy: Amazon (AMZN)
There’s no secret to why Amazon is a top pick among the FAANG stocks. The online retailer has continued to dominate e-commerce with its “take no prisoners” mantra. That focus has helped push AMZN’s sales higher and higher. For all of 2018, Amazon managed to rake in a whopping $232.9 billion in revenues. Even better is that continued surge in sales has helped the once unprofitable firm pull in some massive dough. Amazon’s total profit for 2018 topped $10 billion.
But Amazon’s beauty isn’t just in selling products via its namesake website, it’s in the firm’s entire ecosystem. Everything Amazon does, it frankly disrupts.
Take cloud computing for example. Featuring low-cost and ease-of-use products, the Amazon Web Services suite has become one of the leaders in the cloud. The best part is infrastructure-as-a-service, software-as-a-service and other applications come with massive margins and cash flows. And it’s using those cash flows smartly to fund projects in retail operations. Speaking of which, Amazon has quickly become one of the largest brick-and-mortar retailers as well. With forays in healthcare via PillPack, Amazon will keep the growth and disruption moving forward. Plus a consumer finance venture might be on the horizon.
No wonder why famed New York University Professor Scott Galloway proclaimed that “Amazon, right now, I would argue, is the most dominant company in the world and maybe the most dominant company, at this point, that we’ve ever seen.”
It’s been a few years since Galloway was quoted saying that — and AMZN has only gotten bigger and better.
Apple has a unique place among the FAANG stocks. It is the only one that’s considered a “value” stock and the only one in the group that pays a juicy dividend. That dividend and hefty buyback program come courtesy of its huge $210 billion cash pile.
While must-have devices and hardware got that pile initially growing, it’s been services that have been keeping it fat for investors.
As hardware sales and the smartphone refresh cycle has slowed, AAPL has been leaning hard on sales of digital content and other applications to keep the cash flowing. That’s good because sales from the iTunes Store and the App Store, as well as subscriptions to Apple Music, come with fat margins. As does user subscriptions to iCloud storage and AAPL’s digital wallet and peer-to-peer payments technologies. With services, Apple has margins close to 64%. And in that, the FAANG stock has been able to overcome some of the declines in hardware sales. In the last reported quarter, Apple managed to bring in $11.5 billion in services revenue. These services now account for about 20% of the firm’s revenue. This up from 13% recorded in the first quarter.
The beauty is that Apple has plenty of ways to keep the services and subscriptions going while it waits for hardware sales to perk up. This includes the launching of its new Apple TV+ streaming service and streaming bundle packages.
All should keep the cash flowing and the hoard growing. And for investors, that means continued dividend growth from AAPL stock.
Alphabet (GOOG, GOOGL)
Despite changing its name and messing up the acronym, Google is still one of the best FAANG stocks to buy and hold. Like previously mentioned Apple, the key for GOOG comes done to its massive cash flow potential.
Sure, businesses like Google Home Assistant and Waymo’s self-driving cars get a lot of attention from analysts, but the reality is that GOOG is an advertising company. As you search the web, check your email, look at your calendar, use your GPS or one of Google’s other 9 million applications, you’re generating billions of data points. Even better is that GOOGL’s forays into devices and even those self-driving cars collect more data about what you are doing.
And no one is better at digging through megabytes of information than Alphabet.
Google derives about 83% of its revenues from online advertising. And because of those high margins and profits, GOOG still generates some hefty cash flows. Analysts are expecting Google to see a nearly 16% jump in core advertising revenues this quarter with total revenues hitting $40.3 billion.
As we continue to do more online and with technology, Google will continue to mine our lives for information. For the long haul, this continues to make the firm’s platform very valuable. And it makes the FAANG stock a big buy.
At the time of writing, Aaron Levitt was long AMZN stock.