Has the shine come off the FAANG stocks?
Market behemoths for years, the group of tech giants rallied in early 2019, but many see their days at the vanguard to be a thing of the past. Portfolio manager Ross Healy of MacNicol & Associates Asset Management says that while some of the FAANG names may still be buys, others are in the no-go zone.
The recent earnings season was mostly a success for the FAANG stocks, which include Facebook (Facebook Stock Quote, Chart NASDAQ:FB), Amazon (Amazon Stock Quote, Chart NASDAQ:AMZN), Apple (Apple Stock Quote, Chart NASDAQ:APPL), Netflix (Netflix Stock Quote, Chart NASDAQ:NFLX) and Alphabet (Alphabet Stock Quote, Chart NASDAQ:GOOGL). Coming in with earnings beats were Apple, Amazon and Netflix, with their respective share prices rising in response. Facebook also headed higher on higher than expected revenue, while the lone blemish was Google, which saw its stock plummet on a disappointing top line even as its EPS bested expectations.
But confidence in FAANG and the tech sector to lead the market has been waning, with other sectors such as consumers, financials and industrials all thought to be once again pulling their weight. Part of the problem seems to come from the individual battles being fought by each the FAANG names, with Amazon currently guiding for lower profits in the face of increased investment needs, with Facebook and Google being threatened with regulatory challenges and Apple by declining iPhone sales and finally with Netflix facing increased competition in the streaming market.
Healy says that while still widely viewed as investor favourites, only Amazon and Facebook make investing sense at the moment.
“We track the FAANGs very closely because they’re such enormously popular stocks,” says Healy to BNN Bloomberg last Friday. “First of all, Amazon, it’s a decent technical Hold/Buy. It’s got a floor on it at about $1650 and possibly a short-term ceiling of about $2125. But note that when you look at Amazon, the intrinsic value is 70 per cent below the current price, the P/E ratio is 60 and the price to book is 18 — this is not what you would call a value stock.”
“Facebook has given us a short-term buy signal, so it should provide a nice trade. It’s got some technical support at $187-$189, it has a nice measure upwards of probably 20-25 per cent and it’s okay value. So, I like Facebook,” he says.
As for Apple, Healy claims that its status as a premier growth stock is questionable, as its hardware sales have been trending lower even as service revenues have been on the rise. And on both Google and Netflix, Healy says that they’re both presently dealing with technical resistance levels, which could present challenges.
“So, what we’ve got are two stocks, Amazon and Facebook, which I think are worthwhile holding and perhaps even buying. The other four, quite frankly, I wouldn’t touch at this moment,” Healy says.
Disclosure: Cantech’s Nick Waddell owns shares of Amazon