What Are the FANG Stocks?
What Are the FANG Stocks?
The stock market has had a great run with the S&P 500 rising 12% and Dow Jones Industrials up 14% since the night of the presidential election in November. But, as often happens, the rally is heavily driven by a handful of stocks. Investor’s Business Daily wonders, can Apple keep driving the Dow by itself?
Apple rose 2.7% to 3.01 in Monday stock market trading, hitting yet another record high and becoming the first company to top an 0 billion market cap intraday. Apple has surged 32% in 2017, the best performer by far in the Dow Jones industrial average, as investors bet the upcoming iPhone 8 will be a huge success. Apple has added 255.7 points to the Dow this year, accounting for 102% of the Dow’s total rise of 249.7 points.
Similar to Apple are the internet related stocks grouped under the acronym FANG which stands for Facebook, Amazon, Netflix and Google. How should one trade these stocks considering that same have P/E ratios in the stratosphere?
Facebook: P/E ratio = 38
Amazon: P/E ratio = 179
Netflix: P/E ratio = 206
Google: P/E ratio = 31
Apple: P/E ratio = 18
Investors and traders commonly pay a premium for growth stocks but how long can one justify paying a premium on a large cap stock like Netflix when it has a P/E ratio of more than 200?
Which FANG Stocks Should You Buy?
The Street writes that the FANG stocks represent the best of technology and wealth-creation opportunities for investors over a long period of time. Considering how high their prices have gone which of the FANG stocks should you buy?
Unlike tech giant Apple (AAPL) , none of Facebook (FB) , Amazon (AMZN) , Netflix (NFLX) or Google parent Alphabet (GOOGL) pay a dividend. But what they do offer is stellar stock appreciation.
If you were to buy only one FANG stock, which one should you choose?
The correct answer would depend on a host of factors, such as earnings growth, profitability and valuation upside.
Netflix, whose shares have gained more than 800% in the past five years, is the only company in the FANG group that should make investors uncomfortable.
Despite being a cash machine, Netflix has not been able to improve on its profitability in the last decade. In the next few years it will likely rise but afterwards you may want to be shorting the stock.
Amazon is also in the high P/E class but has more than one source of revenue and its cloud service business may eclipse its online sales as time goes on. Amazon probably has more room to run before you pull your shares.
Google has more than 0 Billion in cash reserves and is a king of the internet. With a much more reasonable P/E ratio this stock is still a buy.
Facebook has been solving the problem of how to monetize its huge user base. The company is diversifying and it has a more reasonable P/E ratio so this stock is still a buy.
Apple has the best P/E ratio of all and pays a nice dividend. And Apple tops Google with 6 Billion in cash. Being cash poor once nearly killed Apple and that will never happen again. Apple users are dedicated to Apple products. That by itself is a good reason to stick with this stock.