There are good reasons why FAANG stocks continue to generate investor interest. The companies that comprise this popular group of stocks are industry leaders who have proved to be winning investments.
The so-called Magnificent 7 stocks might grab more headlines these days, despite there being some overlap between them, but which FAANG stocks to buy (or avoid!) remains a hot topic. As they should. The companies possess significant advantages over the competition. Their competitive moats remain substantial. The stocks may rise and fall, but their businesses still hold enduring qualities.
That doesn’t mean you should randomly buy these stocks. For all their strengths, there are weaknesses, too. As we move through September, two FAANG stocks stand out as stellar buys at the moment, and one is a stock that just might disappoint investors.
Amazon (AMZN)
Amazon (NASDAQ:AMZN) enjoyed a massive run-up in value during the pandemic because it was one of the privileged few businesses deemed essential. Yet Wall Street questioned its slowing growth rates, which cut its stock in half in 2022.
That was a great opportunity for investors. Amazon is still where consumers go to buy a product online. It has a 47.9% share of the e-commerce market. Analysts seemingly ignored Amazon’s real future growth driver: Amazon Web Services (AWS).
AWS is the world’s No. 1 cloud services provider with a 32% share, according to Canalys data. It also recently introduced a suite of artificial intelligence tools called Bedrock. Cloud revenue rose 12% in the second quarter to $22.1 billion with operating profits of $5.4 billion. AWS has always been Amazon’s true profit center, accounting for 70% of total operating income.
Amazon stock is up 72% from the lows hit last year, though still 17% cheaper than its all-time highs. At 44 times earnings estimates, shares don’t seem discounted, and they’re not. But they’ve rarely gone on sale. With commanding positions in e-commerce and the cloud, the premium can be justified and there’s plenty of room left for future growth.
Meta Platforms (META)
It might not go by Facebook anymore, but Meta Platforms (NASDAQ:META) is still a force to reckon with. Its user base is unequaled with a combined 3.9 billion monthly active users spread across a trio of popular apps: Facebook, Instagram, and WhatsApp. It also recently launched Threads, a purported Twitter-killer app (the jury is still out on that).
Considering there are an estimated 4.9 billion social media users worldwide, or 60% of the global population, Meta has a massive influence on what people see and hear. It’s also the place where business wants to be seen. Advertisers know to reach as broad of an audience as possible they need to be on Meta’s social media services.
Although it and Google no longer account for the majority of global ad dollars spent online, they still hold a near-50 share of the market. Meta is also investing in some of the most important tech trends, including the metaverse (hence its name) and in AI.
Shares have more than tripled from their recent lows, but Meta Platforms only trades for 18 times next year’s earnings estimates. And Wall Street forecasts it will expand profits at a compounded 30% annually for the next five years. There’s still a lot more gas in this social media giant’s tank.
Netflix (NFLX)
Netflix (NASDAQ:NFLX) is still a streaming star but fights regularly to retain the crown of having the most subscribers with Disney (NYSE:DIS). With more than 238 million paying subscribers globally, Netflix is on top again. Yet it’s also the most canceled service among viewers.
A survey by Vorhaus Advisors found Netflix was the most frequently mentioned service consumers canceled in the past three months. Some 2,000 adults were questioned by the market research firm and Netflix was mentioned by 37%. Hulu was the second most at 24%, followed by Amazon Prime at 20%.
It’s probably not surprising since Netflix is the biggest service, but it comes as it tries to reinvigorate subscriber growth. It may be more difficult than it seems.
Half of the survey respondents canceled to save money. That’s key because Netflix raised prices in the U.S. and other major markets in the first half of 2022. It’s also cracking down on password sharing.
Netflix stock also trades at 25 times estimates and 41 times free cash flow. Although Wall Street estimates the streamer will grow earnings at 24% annually for the next five years, that’s almost half the rate (44%) they grew over the past five years.
The streaming service isn’t a bad company, but its stock is the one FAANG stock to avoid.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
