It’s 2019 and the FAANG stocks are “grossly overvalued”, this investor says

What’s in store for Act Two? Probably more pain, says investment analyst Ross Healy of Strategic Analysis Corporation, who argues that the FAANG valuations still need some tearing down.

Market drivers for the last number of years, the FAANG stocks all got walloped last fall but have shown signs of recovery over the first few weeks of 2019. Year-to-date, Amazon and Apple are each up eight per cent, Alphabet is up 7.5 per cent, Netflix is up 32 per cent and Facebook is up 27 per cent.

Facebook’s downturn last year might have been the most dramatic, starting in July with the largest one-day loss in US market history as investors reacted to a quarterly report which showed signs of slowing user growth to go along with management’s pared down revenue guidance for the rest of the year.

But the social media behemoth turned things around with its last quarter, which arrived on January 30, beating analysts’ expectations on both revenue and earnings while showing growth in daily active users across every geographic region, sending FB’s share price up 12 per cent.

But Healy says that investors should be wary about jumping back into Facebook —or any of the FAANGs, for that matter.

“We were looking for a pullback [from Facebook] and we’ve certainly had it. But the stock is still not what I would call cheap,” says Healy, Chairman of Strategic Analysis, to BNN Bloomberg Monday. “Our fair market value based on the earnings going ahead is $135, so it’s still a little on the pricy side. It’s got terrific support at $115-$118 and I would not be surprised if it got down there that there’d be one heck of a good bounce.”

“Right now, I’m looking at all of the FAANG stocks and they all got grossly overvalued. Some of them had the downside risk of as much as 85 per cent,” he says. “You’ve got to be careful about these stocks. They’ve had one correction down and now a counter-correction. I would be surprised if that’s it.”

“They’ve all broken their uptrends and now they’re scrambling to get back onside and I don’t think they’re going to do it. I suspect that there’s more to come on the downside, pretty much across the board, for this group,” Healy says.

Disclosure: Cantech’s Nick Waddell owns shares of Amazon