By Amram Margalit – Leverate

The stock market has seen an acronym craze of tech stocks, which began when CNBC’s “Mad Money” host Jim Cramer coined the term “FANG stocks” in an episode on February 5 ,2013. Back then, this abbreviation referred to Facebook, Amazon, Netflix and Google, which were all on their way to an all-time high. In the episode, Cramer exclaimed: “Put money to work in the companies that represent the future.”

Since then, the future has mostly proved him right, and newer, longer abbreviations emerged to represent other large tech companies who also experience a strong momentum in the stock markets.

We’ve had Cramer’s own FAAA – excluding Netflix and including Alibaba and Google’s parent company, Alphabet, we’ve had Merrill Lynch strategist Savita Subramanian’s FAAANG – adding Broadcom (AVGO) and Adobe in late 2017, and Goldman Sachs added Apple to their list of stocks with huge growth potential, giving birth to FAAMG (with Microsoft, without Netflix), and the now more popular term “FAANG”.

Despite the considerable variation within this group of companies – with Netflix being a relatively small company which focuses on content rather than technology, and each of the other four making their original fortune in entirely different fields of the high-tech world – these five companies are grouped together in Wall Street since they are the most popular tech stocks with the highest performance rates overall.

The purpose of categorizing them under one moniker, is to illustrate a certain impact they hold on the financial markets as a whole. All of these stocks are traded on the NASDAQ, which lists more than 3,000 companies which some consider to be a pretty accurate representation of the entire economy.

In the S&P 500 Index, which measures the market capitalization of the 500 leading stocks in both the NYSE and NASDAQ, FAANG stocks are all within the top 10, and in 2017 they contributed almost a quarter of the entire S&P 500 return.

Over the years, there has been speculation on whether FAANG stocks actually represent a bubble, similar to the Dotcom bubble that burst in early 2000. Some analysts asserted that a growth rate of such proportions is not sustainable in the long term, and their bullish momentum would eventually wane when they wouldn’t be able to keep up with their own pace of innovation. However, most analysts agree that these companies still have enough room to grow in upcoming years, especially with their insanely high R&D budgets which continuously explore new fields and ventures, from artificial intelligence to big data and cloud computing.

Pulling FAANGs Apart

Nevertheless, the main question that investors are interested in is whether to buy, sell or hold these stocks. Despite the tremendous gains these stocks made in the past five years, concerns are arising regarding their average price, which soared dramatically during those years. Each one of them will have to generate almost unimaginable returns in order to justify their excessive current price.

So that almost certainly rules out the “buy” option for most traders. But chances are that if you’ve been trading for some time in US stocks than you already own some FAANGs, if not directly than through mutual funds, so the main question on your mind should be whether to sell or hold. For these purposes it is best not to group them together, but to analyze each one of them separately.

So here is a short breakdown of the “FAANG five” in terms of future market performance, according to Kiplinger’s financial advisors:

Facebook – The social media giant is under heavy fire lately regarding its data privacy blunders. However, analysts are far from bearish on Facebook’s stock, considering its enormous user base, so it’s highly likely that Facebook will keep up its 27% profit growth in upcoming years, making it a definite hold.

Amazon – Jeff Bezos is apparently betting his company’s future on online grocery-shopping, with the acquisition of Whole Foods. Amazon’s growth strategy is known for its exceptionally high R&D spending, so analysts predict it will be able to generate profit whenever it wants. With its never-ending expansion, and a price-earnings ratio of 202, holding is the best strategy right now.

Apple – As the company with the highest market cap in the S&P 500, Apple is undoubtedly a mammoth. The iPhone remains its main source of income, and with a P/E ratio of 18 and a horde of devoted followers, it seems like Apple’s future is bright, with Kiplinger rating it “buy”, or in case you already own some, a sure-fire “hold”.

Netflix – The smallest company on the list with the most volatile stock action, Netflix has seen an unimaginable ascent of 82% in 2018, at one point surpassing its main competitors Comcast and Disney to reach a market cap of 153 Billion USD. Despite a fierce competition from newcomers Hulu and Amazon Prime, so far Netflix has been able to retain its edge, and although Kiplinger rated it “sell” in late 2017, investors today are more optimistic about its ability to grow.

Alphabet (Google) – Probably the biggest question mark on this list, analysts cannot be sure of Google’s potential to maintain high revenue. Following Google’s restructuring and the founding of Alphabet, the company has been launching many different trial balloons, from cloud to AI to self-driving cars. It’s hard to tell which one of these will land, but Google’s daily bread is still ads, so the company needs to keep counting on its ability to draw more searches. In that sense, analysts give it a cautious “hold”.

About the Author:

Amram Margalit is a professional writer who has worked in a wide range of settings, including technology companies, nonprofits, and the entertainment industry. Within these positions, Amram has provided quality content and advertising services and is currently the Content Manager at Leverate.