After a disappointing 2018, the stock markets have been on an upswing this year, primarily due to positive development on the trade-war front, financial stimulus by the Chinese authorities and dovish stance of the central banks globally.
FAANG stocks have also put up an impressive performance in the year so far. These represent the most well-liked and high performing stocks that generate impressive returns for investors. This term was popularized by CNBC's Mad Money host Jim Cramer.
The word FAANG is an acronym where "F" stands for Facebook FB, "A" for Amazon AMZN, the next “A” stands for Apple AAPL, "N" for Netflix NFLX, and finally "G", which represents Alphabet GOOGL, commonly referred to as Google.
On a year-to-date (YTD) basis, Facebook, Amazon and Apple have posted gain of 27.9%, 18.8% and 18.4%, respectively. Netflix and Alphabet have gained 34.5% and 13.9%, respectively, during the same period. The tech-heavy Nasdaq 100 and the S&P 500 posted rally of 15.6% and 12.3%, respectively, in the YTD period.
FAANG – Digging Into the Details
Alphabet and Facebook currently dominate the U.S digital ad market. Alphabet's stellar advertising revenues and improving paid click growth are the key catalysts. The company’s focus on innovation, AI, cloud, home-automation space, strategic acquisitions and Android OS will likely keep generating strong cash flows. Alphabet has shown impressive execution over the years, more or less maintaining dominant share in a competitive, fast-growing search market. Furthermore, Google’s robust mobile search is a major positive.
Facebook is benefiting from its huge user base. The company estimates that more than 2.7 billion people use its “Family” of services, which includes Facebook, WhatsApp, Instagram and Messenger, on a monthly basis.
Amazon continues to ride on its e-commerce dominance. The company’s aggressive retail strategies, distribution and delivery strength, and expanding Prime subscriber base are key catalysts. Additionally, Amazon’s continued momentum in cloud computing courtesy Amazon Web Services (“AWS”) is a major positive. Also, improving Alexa features andcompany’s growing prowess in smart and connected home solutions market space through acquisitions like Ring is a major growth driver.
Despite weak demand for iPhone, Apple is expected to benefit from expanding Services segment, driven by solid App Store sales, and increasing adoption of Apple Music and Apple Pay. Apple's endeavors to open up its ecosystem, through partnerships with the likes of Samsung and Amazon, are likely to support this segment. The latest announcement of subscription-based video streaming, news and gaming service is a catalyst. The new credit card, supported by Goldman Sachs and Mastercard, will benefit from Apple Pay’s growing adoption.
Netflix is dominating the video streaming market, driven by content portfolio strength that is helping it to expand subscriber base. The company remains confident of adding more subscribers as the trend of binge viewing is catching up fast. Netflix now has more than 139.26 million paid subscribers globally.
Tech Sector at Large Holds Promise
The technology sector, which bore the brunt of market volatility in 2018, has been recovering impressively so far this year. Currently, the Technology Select Sector SPDR XLK is up 18.7%, year to date.
We believe technology stocks are well poised to outperform FAANG stocks in 2019 due to a number of favorable factors.
Rapid adoption of AI, cloud, IoT, autonomous cars, wearables, virtual reality/augmented reality devices presents massive growth opportunity. Moreover, increasing video streaming has been driving user engagement that is, in turn, attracting advertising dollars. Additionally, growing demand for smart speakers and connected devices, which are powered by AI, machine learning and deep learning, is a key catalyst. Furthermore, the accelerated deployment of 5G technology is encouraging.
Here, we have picked stocks that not only crushed FAANG returns but also flaunt favorable Zacks Rank #1 (Strong Buy) or 2 (Buy) and VGM Score of A or B.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Avid Technology AVID develops, markets, sells and supports a wide range of software and systems for creating and manipulating digital media content. At present, the stock flaunts a Zacks Rank #1 and has a VGM Score of A. The company’s projected earnings growth for the ongoing year is an impressive 148.2%. Shares of Avid Technology have gained 51.6% year to date, substantially outperforming the 17.2% rally of the industry it belongs to.
Digital Turbine APPS offers products and solutions for mobile operators, device OEMs and third parties. The company flaunts a Zacks Rank #1 and has a VGM Score of B. Its expected earnings growth for the current year is a whopping 240%. Shares of Digital Turbine have gained 75.9% year to date, substantially outperforming the 27.2% rally of the industry it belongs to.
Castlight Health CSLT operates as a provider of cloud-based software. Currently, the company carries a Zacks Rank #2 and has a VGM Score of B. Its estimated earnings growth for 2019 is 133.3%. Shares of Castlight Health have gained 73.7% year to date, substantially outperforming the 27.2% rally of the industry it belongs to.
Upland Software UPLD is a provider of cloud-based Enterprise Work Management software that helps organizations plan, manage, and execute projects and work. The company currently holds a Zacks Rank #2 and has a VGM Score of B. It’s expected earnings growth for the current year is 17.1%. Shares of Upland Software have gained 60.2% year to date, substantially outperforming the 27.2% rally of the industry it belongs to.
Rakuten RKUNY engages in the Internet-services business. Its operating segments consist of Internet Services, FinTech and Others. Currently, the stock carries a Zacks Rank #2 and has a VGM Score of A. The company has a long-term projected earnings growth rate of 7.5%. Shares of Rakuten have gained 44.4% year to date, substantially outperforming the 17.3% rally of the industry it belongs to.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.
This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
See their latest picks free >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
Netflix, Inc. (NFLX) : Free Stock Analysis Report
Facebook, Inc. (FB) : Free Stock Analysis Report
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
Digital Turbine, Inc. (APPS) : Free Stock Analysis Report
Castlight Health, inc. (CSLT) : Free Stock Analysis Report
Upland Software, Inc. (UPLD) : Free Stock Analysis Report
Apple Inc. (AAPL) : Free Stock Analysis Report
Avid Technology, Inc. (AVID) : Free Stock Analysis Report
Technology Select Sector SPDR Fund (XLK): ETF Research Reports
Rakuten, Inc. (RKUNY) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research