Strong Tower

The FAANG Stocks May Still Have Fangs

The Internet hasn’t only changed the way people communicate, check on financial accounts or study for school projects. It has brought great wealth to certain companies and their stockholders. Whether they are in the social media realm, in entertainment, online product sales or make the devices we use to access the Internet. Most have reflected the explosion in this new technology.

faang stock post image

FAANG stocks, a term presumably coined by well-known stock promoter Jim Cramer, describes five tech stocks that have had tremendous growth in recent years. Facebook, Apple, Amazon, Netflix and Google (Alphabet). These five stocks account for 11.9 percent of the S&P 500’s market capitalization.

The stocks had all had great success since their initial offerings and continued that trajectory during the rally after the inauguration through March. Then; something happened. First, during the week of  June 5th to 9th, 2017, several of the stocks hit new highs.

Call it a correction, but the trajectory then hit a bumpy road for a time. On Friday, June 9, 2017, alone, each stock within the group closed down 3 percent or more on high volume. The stocks fell again the following Monday on June 12th. Some analysts were labeling this pull-back the “tech wreck.”

The forward-looking PE’s of each of these stocks varies wildly. They do not fit one mold. So, to speak of the group as one entity is not accurate. That being said, their performance has brought focus to the group.

Tech Today versus Tech 2000

Their pullback may not be a surprise. Maybe investors thought it was a good time to take profits. But, to try to draw any conclusions, about five stocks in different markets with different business models. May be an exercise in futility. During the tech bubble, and it’s build-up, of the late 1990s and 2000, the PE ratios became so high that most of the tech stocks simply were an illogical investment. With some of these FAANG stocks, the PE ratio seems to be too high.

Some analysts tried to draw a comparison between the current sustained rally in tech stocks and the environment that existed in early 2000.

But, much of the hype about the decline might be overwrought. Liz Ann Sonders, the Chief Investment Strategist at brokerage firm Charles Schwab, said in a statement that. It might surprise many people that “none of them were even in the top 30 best performers within the S&P 500 at the recent market peak,” speaking of the FAANG stocks.

She also pointed out that two of the stocks, Amazon and Netflix, are considered consumer discretionary stocks and not even in the tech sector.

Much of the recent ballyhoo has not only been about the FAANG stocks, but about the tech sector in general.

The more recent rally in the tech sector has restored it to its peak in 2000. That means that in more than 17 years, the sector is now flat as of now based on the S&P 500s tech sector. Small and mid-cap tech stocks have out-performed the index.

Retail investors own two-thirds of the shares of the FAANG stocks. This means that the recent price movements can be as much out of emotion and an eagerness not to leave money on the table. With institutional investors, in contrast, the movement would have been more likely the result of computer models that look at technical or fundamental factors. Some pundits did suggest that it was programmed trading that at least started the pull-back.

It should be noted also that the Dow had five record highs in the seven trading sessions since the pull-back in the FAANG stocks on June 9th, and on June 19th, the tech sector rebounded up 1.7 percent. The biggest one-day gain in six months for the sector. Sectors are often cyclical.

It may be that the FAANG stocks haven’t lost their bite yet.