The FAANG stocks comprise some of the world’s most popular tech stocks, including Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL). Collectively, they have been largely responsible of the market’s gains over the past few years. However, things have changed this year, with the group failing to lead the market over the past 6 months.
Now, investors are reevaluating whether FAANG stocks are able to deliver as they once did, and for good reason. However, while some of the FAANGs are starting to fade, others look like they could continue to deliver well into the future.
Here’s a look at which FAANGs deserve a spot in your portfolio and which ones are far more questionable now.
FAANG Stocks to Buy or Sell: Facebook (FB)
Recommendation: Buy
Of all the FAANG stocks, Facebook is arguably the most powerful. In today’s world, it’s difficult to do anything without FB having some kind of an impact. The firm owns two of the three most popular messaging services with both WhatsApp and Messenger operating under its umbrella. Plus, the firm’s flagship social media site, Facebook together with Instagram boast more active users than any other platform. All told, 2.8 billion people use Facebook or one of its services every month.
That’s a big deal for a lot of reasons, but namely from a data standpoint. Facebook has access to massive amounts of user data, which not only helps support the firm’s bread and butter — advertising revenue — but it also adds to FB’s ability to develop cognitive computing.
In an interview with InvestorPlace, John Freeman, Vice President of Equity Research at CFRA described the importance of cognitive computing to FAANG stocks like FB:
“One thing that all of the big tech titans want now in order to get a leg up in AI or machine learning or any other type of what I call “cognitive computing” (I’m not the only one to use it as a catch-all for multiple techniques allowing software to make decisions based on criteria that not explicitly defined) is DATA! And the more real-time the flow, the better.”
In other words, Facebook’s massive amounts of data should keep it afloat in the years ahead.
Apple (AAPL)
Recommendation: Buy
While the FAANG stocks have always been notorious for delivering high-powered growth, AAPL stock, in my opinion, is the best option of the bunch. Not only is Apple poised to continue delivering growth to investors, but the firm’s established position and financial health means it’s also the safest of the FAANG stocks.
AAPL stock stumbled a few years ago as investors started to question whether the firm would be able to produce the kinds of gains they’d gotten used to. After all, AAPL has made its name by creating innovative products that upend the market — where is the next one?
While the Apple Watch has been a leader in the wearable space, it’s hardly a game changer. It’s true that the iPhone was Apple’s last big showstopper, but that doesn’t mean the firm isn’t innovating. This quarter we saw the firm roll out a content streaming service to complement its existing music subscription. Many are expecting an iPhone subscription service to be next. Apple’s power is in its ecosystem, once you’re in, switching is difficult.
A subscription model makes sense for AAPL’s loyal following, and it would benefit investors as well. It would offer a predicable revenue stream while further ingraining Apple users into the firm’s ecosystem.
The other reason I like Apple stock is that it’s the only FAANG to pay a dividend. While it currently yields just 1.18%, Cook and his team have proven to be extremely shareholder friendly over the past few years, so it wouldn’t be surprising to see that figure rise in the future. Right now, worries about the trade war with China are weighing on Apple stock, making now an excellent time to take a position.
Amazon (AMZN)
Recommendation: Buy
Amazon is another FAANG stock that’s on my buy list. The firm’s roots in e-commerce have spread across a wide variety of industries to create a superpower that’s hard to ignore. Unlike some of the other stocks on this list, AMZN has been largely left out of the rally this autumn as investors worried about the firm’s lackluster quarterly results.
Amazon’s push toward one-day shipping has increased costs significantly, which has hurt profits and bruised investor confidence. On top of that, Amazon’s cloud arm, AWS, lost a $10 billion contract with the department of defense. That loss further chipped away at confidence in Amazon as the firm has been the most powerful player in cloud computing for as long as the industry has been around.
AWS is a huge part of Amazon’s profitability as it delivers much better margins than its retail business. While competition is certainly becoming a factor for the giant, AWS looks likely to continue operating as a best-in-class cloud provider for the foreseeable future.
Analysts are expecting AMZN to deliver earnings growth of roughly 50% per year in the future, so investors who are comfortable waiting through the firm’s spending spree should start taking a position now before the firm’s quarterly results pick back up.
Netflix (NFLX)
Recommendation: Sell
Netflix is in a tough spot right now as the streaming space is flooded with new entrants. The firm was able to deliver impressive gains for years as it embarked on a business no one had seen before. However, now that cord cutting has gained traction and NFLX has paved a path to follow, the firm may find itself abandoned.
Now, it’s hard to imagine a world without Netflix, but consider other first-movers like Blackberry (NYSE:BB) whose offerings changed the world only to be quickly replaced by competitors.
It’s too soon to tell who will win the streaming battle, but NFLX looks to be in a precarious position moving forward. Rivals like Disney (NYSE:DIS) have huge content libraries and fat cash flows behind their offerings, which could put a damper on NFLX’s subscriber growth going forward. While most agree there’s enough room in the streaming space for more than one service, it’s unclear whether NFLX has the financial fortitude needed to produce enough of its own quality content to beat out rivals.
NFLX’s near-term selloff could offer some short-lived gains as many expect a recovery during the back half of the year. However, in the long-term, NFLX looks like the worst of the group.
Alphabet (GOOGL)
Recommendation: Hold
Analysts have been in love with Google parent Alphabet recently. The firm’s lackluster Q3 results brought the stock lower, sending value investors into a buying frenzy. Analysts upped their price targets, saying the firm’s earnings figures were actually more positive than the market believed because a large chunk of its costs were one-time expenses.
However, there’s more to the story for GOOG stock. The firm’s advertising business, where it brings in the majority of its revenue, is up against some headwinds in the months ahead. The Q3 results show Google is having to spend more in order to drive traffic and, in turn, collect advertising revenue.
That’s a problem because GOOG has yet to generate a significant proportion of its revenue from anything other than advertising. While its many “moonshoot” ventures have been praised for their innovative qualities, the firm isn’t actually making any money on them.
Not yet anyway.
All is not lost for GOOG stock — the firm’s advertising arm is still profitable and that has helped the firm develop future growth initiatives. For now, things don’t look overly optimistic for GOOG stock, but that doesn’t mean it’s time to jump ship. There’s still plenty of potential ahead.
As of this writing, Laura Hoy was long FB, AMZN and AAPL. She recently sold half of her position in NFLX.
