U.S. markets closed
  • S&P 500

    4,266.49
    +24.65 (+0.58%)
     
  • Dow 30

    34,196.82
    +322.58 (+0.95%)
     
  • Nasdaq

    14,369.71
    +97.98 (+0.69%)
     
  • Russell 2000

    2,333.62
    +30.15 (+1.31%)
     
  • Crude Oil

    73.33
    +0.25 (+0.34%)
     
  • Gold

    1,775.10
    -8.30 (-0.47%)
     
  • Silver

    26.00
    -0.11 (-0.43%)
     
  • EUR/USD

    1.1940
    +0.0007 (+0.06%)
     
  • 10-Yr Bond

    1.4870
    0.0000 (0.00%)
     
  • GBP/USD

    1.3918
    -0.0045 (-0.33%)
     
  • USD/JPY

    110.8600
    -0.1020 (-0.09%)
     
  • BTC-USD

    34,843.82
    +1,784.07 (+5.40%)
     
  • CMC Crypto 200

    838.01
    +51.39 (+6.53%)
     
  • FTSE 100

    7,109.97
    +35.91 (+0.51%)
     
  • Nikkei 225

    28,875.23
    +0.34 (+0.00%)
     

What Will Drive the Next Leg of Growth for FAANG Stocks in 2021?

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
·5 min read
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

The year 2020 has been a fabulous one for FAANG stocks so far. This group of stocks has shown remarkable resilience against the brutal coronavirus-led economic downturn. Moreover, the growing optimism surrounding gradual economic recovery post arrival of vaccines from Pfizer, Moderna and a host other pharma companies strengthens the prospects for FAANG stocks in 2021.

The group has benefited from strong demand for e-commerce services and increased media consumption as people are mostly confined to their homes due to lockdowns, shelter-in-place guidelines and social-distancing measures. As vaccination programs will take several months to reach a major portion of the global population, these factors are likely to continue to benefit the FAANG group in 2021.

Amazon AMZN is currently the best-performing stock among FAANGs, trailed by Apple AAPL. Returns from Netflix NFLX, Facebook FB and Alphabet GOOGL have also outperformed the S&P 500, which is up 14.7% year to date.

Year-to-Date Performance

 

Here we discuss some key drivers that are expected to provide a further boost to FAANG’s rally in 2021.

5G Going Mainstream in 2021

5G boasts lightning speed that facilitates seamless transfer of data. Rapid proliferation of remote working, learning and health diagnosis amid lockdowns and shelter-in-place guidelines to curb the spread of the virus have shown the limitations of 4G networks and the urgent need for 5G networks.

Moreover, increasing demand for e-commerce, contactless delivery through drones and digital payment highlight the urgency for 5G network development. Markedly, 2021 is likely to see carriers racing to deploy 5G networks and manufacturers launching more 5G-supported devices.

The FAANG stocks are well-poised to benefit from rapid adoption of 5G. Apple is benefiting from solid demand for its 5G-supported iPhone 12. It has reportedly asked suppliers to raise production for the first half of 2021. (Read More: Apple to Boost iPhone Production: 4 Suppliers to Gain)

Moreover, blazing fast speed is expected to boost media consumption as users will be able download movies in seconds. This is expected to drive demand for content from Netflix, Amazon prime video, Apple TV+ and YouTube in 2021.

Continued Expansion in India

This year, Facebook and Google’s investment in Reliance Jio, Netflix’s launch of low-cost mobile-only subscription plans, Apple’s first online store launch and Amazon’s investments in Indian retail space reflected the growing importance of India among the FAANG group.

While Facebook invested $5.7 billion in Jio for a 9.99% stake, Google poured in $4.5 million for a 7.73% stake.

Markedly, India is Facebook’s biggest market and the deal with Jio (which has amassed more than 400 million users within a short-span of time) will help it to strengthen its footprint in the country. The Jio-Facebook partnership is expected to help small retail businesses go digital through WhatsApp. Further, the deal would provide Facebook valuable user data, thereby helping it to provide targeted ads, its main source of revenues.

The Google-Jio partnership will help the former strengthen its footprint in India. Similar to Facebook, Google reaches a significant population in the country through its search, YouTube and Android. Markedly, Google launched a new fund worth $10 billion, earmarked for investments in India in July 2020.

Meanwhile, this year, Amazon announced an additional investment of $1 billion to help small and medium-sized Indian businesses go digital, bringing its total commitment to $6.5 billion in India. The company expects to create a million new jobs in India over the next five years.

Markedly, e-commerce opportunity in India is massive, with online retail penetration at low single digits currently. This presents a significant growth opportunity for Amazon in the long haul.

Apple’s online store is also expected to boost demand for iPhones among Indian consumers. The iPhone maker has become visibly more aggressive in India in recent years. It has boosted domestic production, courtesy of a spike in demand for iPhone 11 and the new SE models.

Notably, in July, the company’s contract manufacturing partner Foxconn began assembling iPhone 11 in India. This was the first time the company was locally assembling a current-generation iPhone model in the country. Moreover, according to the Bloomberg report, Apple will be opening physical retail locations starting next year in Mumbai, before opening a second outlet in Bengaluru.

Solid Adoption of Digital & Contactless Payment

The coronavirus pandemic has provided a boost to digital and contactless payment, which bodes well for Apple Pay, Google Pay and Amazon Pay. Strong adoption of digital payments among millennials, primarily due to convenience, has been a major driver of the use of digital payments.

According to a Pew Research Center study published in CNBC, nearly one third of adults say that they make almost no cash purchases during a week but opt for contactless payments. Millennials are the ones who are more comfortable using contactless payments. (Read More: 4 Stocks to Watch as Contactless Payment Gains Prominence)

Facebook is also eyeing the digital payment space. Markedly, its WhatsApp pay is now live with State Bank of India, HDFC Bank, ICICI Bank and Axis Bank for Indian users.

Zacks Top 10 Stocks for 2021

In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2021?

These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Start Your Access to the New Zacks Top 10 Stocks >>


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
 
Apple Inc. (AAPL) : 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
 
To read this article on Zacks.com click here.
 
Zacks Investment Research