August has been a crazy month for the markets, as the tit-for-tat U.S.-China trade war rages on, with Trump’s tweets leading to increased volatility. The S&P 500 has now fallen roughly 5% over the last month to help pull it down nearly 3% over the last 52 weeks. And five tech titans that once helped drive much of the decadelong bull run, the so-called FAANG stocks, have seen their shares fall as well.
Facebook FB, Amazon AMZN, Apple AAPL, Netflix NFLX, and Google parent Alphabet Inc. GOOGL make up the group of five technology stocks that came to be known as FAANG. These five firms account for nearly 20% of the S&P 500’s value and contributed more than their fair share to the S&P 500’s climb. But their outsized impact has also hurt the index over the last year, with Facebook the only FAANG component in the green over the last 52 weeks, up 3.3%.
Investors will see that NFLX stock put in the worst performance in the past year, with Amazon a distance second. Much of this downturn was due to the massive second-half/Q4 2018 selloff. In fact, all five stocks are up in 2019, with Facebook and Apple up over 30%. Meanwhile, Amazon has climbed 17%, with GOOGL and NFLX up, 12% and 9%, respectively—the S&P is up roughly 13%.
There are clearly many macroeconomic factors to consider at the moment, including increased global and U.S. recession worries, falling bond yields, and the trade war between the world’s two largest economies. Still, the question is should investors consider buying some FAANG stocks now?
Time to Buy?
Right off the bat, the only FAANG stock currently holding a Zacks Rank above a #3 (Hold) is Alphabet. GOOGL is a #2 (Buy) that has tried to slowly expand beyond its search engine business. Nonetheless, Google is still completely reliant on ads. Luckily Google is the largest digital advertising company in the U.S. and is expected to capture roughly 38% market share in 2019, against second-place Facebook’s 22%. Plus, Alphabet’s revenue jumped 19% last quarter and management authorized its largest ever buyback program at $25 billion.
Looking ahead, our Zacks Consensus estimates call for Alphabet’s full-year revenue to jump 20.3% to lift its adjusted earnings by 13.6%. These impressive growth figures are expected to come in at nearly the same clip next year. GOOGL stock is also currently trading at 21.3X forward 12-month Zacks earnings estimates, which marks a discount compared to its industry’s 27.4X average and its own three-year median of 25.1X.
Google also ended its most recent quarter with over $121 billion in cash on hand. However, the firm doesn’t pay a dividend because it feels its growth is still a more valuable way to return value to shareholders. GOOGL stock also currently rests nearly 10% below its 52-week highs and is one of those stable stocks that might be worth grabbing in our uncertain market.
Moving on, Netflix is currently a #3 (Hold) that holds “F” grades for Value, Growth, and Momentum in our Style Scores system. NFLX stock is also FAANG’s worst performer not only in 2019 but also over the past 12 months, down over 20%. This could give Netflix stock room to run, but Wall Street seems to only care about the streaming TV giant’s subscriber figures. Therefore, investors should likely stay away from NFLX unless it posts stellar Q3 user growth and guidance, especially with Disney DIS and Apple set to enter the streaming market.
Speaking of Apple, the iPhone maker is the only one of these tech stocks that pays a dividend. AAPL currently pays an annualized dividend of $3.08 per share, for a 1.51% yield, which tops the 10-year U.S. Treasury note’s 1.46% yield as of Wednesday. Apple’s yield, coupled with its billions of cash on hand (and buybacks), its lucrative product portfolio, and expanding services unit, perhaps make AAPL stock one of the most stable investments in the world right now.
Amazon is the most well-diversified of the FAANG stocks. The company’s core e-commerce business still makes up its largest portion of total sales, yet its higher-margin third-party seller business has grown faster recently. Plus, AWS is still the leader in cloud computing, despite challenges from Microsoft MSFT and others.
AMZN, which is a #3 (Hold) at the moment, is projected to see its top-line growth slow down compared to the last serval years. But its valuation picture looks far more reasonable at the moment, even though its forward P/E rests far above its industry’s 25.5X average at 57.8X.
Facebook has faced more negativity than most public firms do in a lifetime over the last several years. With this in mind, more than 2.7 billion people use at least one of Facebook’s “Family of services,” every month. FB also has plans to roll out a blockchain-based cryptocurrency and dive deeper in services-style offerings.
Like all of its peers, aside from GOOGL, Facebook sports a #3 (Hold). Facebook is also trading at 20.1X forward earnings. This marks a slight discount compared to its one-year median, its three-year median of 24.2X, and its industry’s 31X three-year median.
Note: It is worth remembering that Amazon, Google, Facebook, and Apple (to a lesser extent) all face increased government scrutiny, which has to be taken into consideration before buying any shares.
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