Are FAANG stocks still worth the hype?
Facebook (NASDAQ: FB), Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL), Netflix (NASDAQ: NFLX) and Google (NASDAQ: GOOG) are not only five of the most prominent tech companies in the world, but they also dominate as the largest tech stocks in the US market.
Referred to collectively by their acronym ‘FAANG’, these stocks have historically outperformed the S&P 500 index and currently make up a sizable portion of it.
Found in most investors’ investment portfolios around the world, FAANG stocks continue to rise in popularity. Especially as fresh-faced retail investors enter the market. In fact, over the past few quarters of 2021 these stocks have consecutively made the top 10 most held stocks list by both Australian and global eToro investors.
While FAANG stocks’ innovation, competitive edge, and leading market share in their respective industries has proved to be the key drivers in their performance, many of these companies have faced scrutiny from regulators and made headlines for all the wrong reasons, especially Facebook.
With this in mind, the question lingers: are FAANG stocks still worth the hype?
Are FAANG stocks still advantageous?
In short, yes, FAANG stocks are still worth it.
Ultimately, FAANG stocks’ high valuations are justified by their tremendous growth aided by superlative financial performance.
While these stocks experienced a dramatic rally in 2020, they are holding strong in 2021, especially as investors look for structural stocks with good growth potential, high profitability and clean balance sheets; all of which FAANG stocks offer in abundance.
So far year-to-date, the average return of all five stocks have performed better than the benchmark set by the S&P 500, with a return of 22.74 per cent, compared with the S&P 500 at 21.8 per cent.
When it comes to its influence on the S&P 500, FAANG stocks reign supreme and make up a significant chunk of the index, currently 22 per cent to be exact.
The biggest social network in the world has been headlining the news in recent times. And not for the reasons investors would hope. On 5 October, Whistleblower Frances Haugen accused the company of safety issues in a testimony to US senators. She brought forward the issue of Facebook prioritising commercial gain over children’s needs.
Despite this, Facebook is still booming. Especially after the announcement of its ground-breaking metaverse and rebranding of its company title to “Meta”.
The company’s shares have climbed 15.6 per cent year-to-date. Its user base also continues to flourish, reporting 2.91 billion monthly active users in Q3 2021, up 6 per cent year-over-year. It will be interesting to see if Meta’s metaverse equates to more growth moving forward.
Like most of the FAANG stocks, Facebook is sitting on a huge pile of cash, reporting cash and cash equivalents of up to USD$58.8 billion, as of 30 September 2021.
Amazon has been the worst performing FAANG stock in 2021.
After a stellar 2020, Jeff Bezos’ brainchild is currently dealing with rigid year-over-year comparisons on earnings. In its recent Q3 report, Amazon’s earnings were down 50 per cent year-over-year.
Why? Amazon is yet another company impacted by the reopening of bricks and mortar stores as lockdowns ease.
Nevertheless, Amazon is continuing to reap the rewards of enterprises transitioning to the cloud. Amazon Web Services (AWS) has delivered the most robust growth of 39 per cent year-over-year.
Amazon is also making waves in the streaming sector with a loyal customer base of over 200 million global members on Amazon Prime, as well as a recent USD$8 billion acquisition of MGM Studios.
The biggest of all the FAANG stocks with a market cap of over USD$2.5 trillion, Apple brings in the hefty bucks with its diversified portfolio of segments and products on a quarterly basis.
The company’s iPhone product range (including the new iPhone 13) revenue annually hits around a whopping USD$41 billion per quarter. Mac and iPad products usher around USD$16 billion.
As one of the cheaper FAANG stocks, Apple’s followers are fiercely loyal. They are expected to maintain this loyalty for many years to come.
While Netflix had a difficult ride at the start of 2021, it came back firing in the tail end of the year.
In its most recent Q3 report, Netflix beat analyst expectations and illustrated solid growth of over 83 per cent year-over-year, after adding over 4.4 million new subscribers in Q3 2021 (a 193 per cent growth from Q2 2021).
Following a disappointing Q2 earnings report, where new subscriber figures dropped to a multi-year low of 1.5 million, the recent report dramatically improved. This was thanks in part to its record-breaking new series, Squid Game.
Finally, Google’s parent company Alphabet, has been the best performing FAANG stock of 2021.
Alphabet has climbed as much as 59 per cent year-to-date, as a direct result of marketers elevating budgets with Google. The company’s revenues have risen by 41 per cent year-over-year, with advertising revenues demonstrating growth of 43 per cent year-over-year.
Cash-flow from Alphabet’s operations has also returned to record highs of USD$25.5 billion.
Like with all stocks, investors looking to invest in FAANG stocks should do their research. Continue to follow the basic tenets of investing, including only investing what you can realistically afford it. Opt for a long-term investment strategy and diversifying your portfolio with a range of different asset classes.