Once seen as growth workhorses, the FAANG group of stocks have seemingly fallen on hard times. Volatility in the general market is clearly being reflected in Big Tech’s ongoing attempts to climb back to the record highs of last summer.
But with a recent dip in share prices, maybe now is the right time to jump back into the FAANGs. Well, at least some of them, says Paul Harris, partner and portfolio manager at Harris Douglas Asset Management, who likes Alphabet (Alphabet Stock Quote, Chart, News NASDAQ:GOOGL), Amazon (Amazon Stock Quote, Chart, News NASDAQ:AMZN) and Facebook (Facebook Stock Quote, Chart, News NASDAQ:FB).
Just about a year ago, the FAANG stocks were speeding along just fine, a force to be reckoned with and a group of stocks whose collective power was strong enough to pull indices higher even when much of the rest of the market was underperforming. Chinks in the armour, however, were there. Facebook’s dramatic plunge last July on disappointing user numbers. Fears that Apple had lost its innovation mojo.
Even so, the smart money seemed to be on FAANG continuing to power through any and all distractions.
Then October came and the FAANGs started dropping, and kept it up for a full quarter.
Three FAANG stocks Paul Harris likes right now: Amazon, Facebook and Alphabet
And, granted, early 2019 was a great rebound. The five FAANGs averaged a return of 22.4 per cent over Q1. But volatility in Big Tech seems to have become more the norm, as represented by the sharp drop in all five names over the past few weeks.
For the optimist, this latest dip may imply a buying opportunity. But Harris would caution that timing your reentry is not an easy task, nor should you be treating all the FAANGs similarly.
“I think that there’s going to be more volatility,” said Harris, in conversation with BNN Bloomberg on Thursday. “When markets do this kind of jerking action, clearly people haven’t made up their minds on what’s going to happen.”
“We own Google. We think it’s one of the cheaper stocks out of all of those names,” he said. “We don’t own Netflix. I think that Facebook and Amazon are great cashflow generating businesses, especially Facebook, and I don’t think that that’s going away.”
As for supporters for a tech turnaround, investors could take heart in Berkshire Hathaway and Warren Buffett’s announcement this week that his firm had increased their stake in Amazon by 11 per cent over the second quarter. In Apple’s case, the Trump Administration this week announced that cellphones and other electronics would stay exempt from a ten-per-cent Chinese tariff at least until mid-December. That was news which caused a jump in APPL on Wednesday.
Regulatory risks are overblown…
Then there’s regulatory and anti-trust concerns, which continue to dog some of the FANNGs.
But Harris is less concerned with these potential impacts.
“There are a lot of issues with tech regulation and some people want to break up tech [but] that takes a long time and breaking up a company is very difficult,” he said. “It’s also that they have to show that this company is hurting consumers, and it’s very hard to prove that when Amazon is making things cheaper for you and delivering things on the same day and stuff like that.”
“Netflix is a little more difficult because of Disney and the competition coming that can really put Netflix on the back step. But I think that those other ones are actually interesting,” he said.