The “FANGs” are sinking their teeth into the wild-eyed imagination of profit-hungry investors.
Market Roundup
I’m talking about Facebook (FB), Amazon.com (AMZN), Netflix (NFLX) and the company formerly known as Google (GOOGL), but now called “Alphabet.” These high-flying stocks have gotten so popular with investors that they’ve earned their own pithy acronym.
Just consider: In a year where the broad averages have basically gone nowhere, Facebook has risen more than 33%, Alphabet has jumped 42%, Amazon.com has surged 106%, and Netflix has soared 133%. Punch up a longer-term chart, and you’ll see Facebook has jumped by a factor of five since the end of 2012. Netflix has exploded more than 14-fold.
What’s driving these gains? Several factors:
The rapid shift toward mobile-and-broadband-based social networking, advertising, media viewing and commerce.
The desire for more on-demand services and programming delivered straight to your high-definition television or tablet, or quick delivery of packages right to your front door.
The shift toward cloud-based technology services in corporate America and around the world.
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| Shares of Amazon have soared, along with other FANG stocks. |
Each of these trends has captivated investors both institutional and individual, and attracted huge inflows to FANG shares. In fact, Facebook hit a record high today after it reported earnings per share excluding items of 57 cents. That beat the average forecast of 52 cents.
Sales came in at $4.5 billion, compared with forecasts of $4.37 billion. Monthly active users topped expectations at 1.55 billion, while 78% of its ad revenue came from mobile-based marketing. That was up from 66% a year earlier.
So where do these stocks go next? Well, so far incredible revenue growth has inspired investors to snap up FANG shares despite periodic quarterly disappointments. They’ve also been willing to overlook the gigantic bills for acquiring richly valued businesses.
Facebook paid $1 billion for Instagram in 2012 when the photo-based social networking site basically had no revenue. It also spent $22 billion to buy the messaging company WhatsApp in 2014, when it had 50 employees and roughly $10 million in annual sales.
For its part, Amazon.com has been shelling out billions of dollars to build the infrastructure for its cloud-based data services and its product-delivery business. It hasn’t made money during the key holiday-shopping season in a half-decade, though it said it would actually operate in the black this year.
Price to earnings ratios haven’t been an obstacle, either. Alphabet is the “stodgy” one of the bunch, with a 12-month trailing P/E of just under 37. Facebook trades at about 105 times earnings, while Netflix goes for 302 times profit. As for Amazon, it sports a P/E of – get this – 929!
| “These companies are dominating their industries and capturing investor interest.” |
No doubt these companies are dominating their industries and capturing investor interest. I suppose it’s just a question of how much you want to pay for that. We clearly haven’t seen momentum wane yet, so if you’re on board, enjoy your profits.
What do you think? Are FANGs a buy, sell, or hold here? Do you own any of these stocks — and why or why not? Will they be able to spur broader market gains, even as many other sectors, stocks and asset classes are lagging as I’ve highlighted before? Do you have other favorites in the sector? Hit up the Money and Markets website and share your thoughts when you have a chance.
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What’s next for the economy? Is privatized mail service a positive or negative? And do we really want a more consumer-focused China after all? Those are some of the issues you were discussing online in the last 24 hours.
Reader Chuck B. said this with regards to the economy: “Our trade deficit shrank 15% in September from the August level, as imports shrank by 1.6%. Does this indicate retailers are preparing for a lower holiday shopping season? Possibly so, since jobs are drying up, as shown by the lower hiring figures, and the large layoffs in many large companies over the year.”
Reader D. also sounded a cautious note on growth: “The GDP numbers from 2015 and 2014 are being revised down, so the fantabulous jobs numbers for those years will also be revised down. Pay attention to the Atlanta Fed’s GDPNow project, which tracks this stuff closer to real-time. It’s projecting 1.5% real growth or lower for this year. It has a better track record than the conventional methods, which have a laborious, dragged-out revision process.”
With regards to the Japan postal service sale, Reader Charles said: “Yes I would buy shares if the U.S. government would actually take their hands off. They continue to cut it loose, then take control again. Given the opportunity to make profits and keep them, they certainly have demonstrated in times past that they can make a profit as a business.”
Lastly, on the goal of a consumer-driven rather than manufacturing-based economy, Reader Caine offered this perspective:
“You know, everyone speaks of the ‘transition to a consumer-based economy’ as if it’s the Holy Grail. Sorry to be a Negative Nancy, but is buying more junk good for the economy or the soul over the long haul? What if we were an ‘infrastructure, education, and research-based economy’?
“We might grow more slowly, but we might have better values, grow in a sustainable way, avoid soar/crash cycles, and more. I’m a capitalist from the word ‘go,’ but don’t believe that consumer growth is the be-all or end-all.”
Thanks for those insights, and I hope you keep ’em coming. An economy needs balance, and countries that generate too much of their growth from one industry or another are vulnerable in the long term. My fear with regards to China is that the messiness associated with its transition away from manufacturing isn’t over, and that will lead to more market turmoil over the coming quarters.
But I’m always open to differing opinions. If you haven’t shared your thoughts yet, please take a moment to do so using this link.
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The epic merger mania wave over the past couple of years has enriched Wall Street, but it continues to claim victims on Main Street. Newly merged Kraft Heinz Co. (KHC) said it would slash 2,600 jobs and close seven factories in a cost-cutting move tied to its $46 billion deal. The goal is to save $1.5 billion per year once the moves are completed by 2017.
Didn’t we just have a major BEAR market in China? Now, it’s supposedly a BULL market again?
My head is spinning, but as the Wall Street Journal notes, threatening to arrest stock sellers, handing out cheap money like Halloween candy, and cutting interest rates have now officially helped pushed China’s Shanghai Composite Index up 20% from its August low. Is it sustainable? History and logic say “No.” But I guess we will see.
Concerns are growing that Metrojet Flight 9268 may have been brought down by an ISIS-planted bomb. All 224 passengers and crew died when the airplane broke apart in midair, scattering debris over several miles of Egypt’s Sinai Peninsula. The investigation is continuing, but U.S. and U.K. officials are starting to lean toward the terrorism explanation.
Expedia (EXPE) is buying HomeAway (AWAY) for $3.9 billion. in cash and stock. The move will make it easier for customers to access listings of private rooms, apartments, and homes for rent if they’re looking for an alternative to traditional hotel rooms on vacation.
So what are your thoughts on the latest round of merger-related job cuts? Do you believe terrorism is responsible for the latest airplane tragedy, and are other airlines vulnerable? What do you think of renting private property on vacation, rather than a traditional hotel room? Hit up the website and share your thoughts when you get a chance.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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Your Safe Money subscribers have been decimated by your recommendations to purchase the DOG and PSQ short etf’s after a significant rise in both markets. Please let us know what to do now !!
BATTING AVERAGE COUNTS
Leveraged inverse ETF Index Funds such as the Inverse S&P 500 are not for the faint of heart. The odds of winning a day-trade using them is short in a trendless, volatile and contrived market like we currently have. Would steer clear of them myself, regardless of anybody’s particular recommendations. Its your money (loss) on the line, not theirs. Remember that.
It seems likely that the Russian passenger plane was downed by a bomb, probably planted by ISIS at Sharm al Sheikh, as a reaction to Russian bombing of ISIS targets in Syria. ISIS loves to kill innocents to drive home their malevolence.
It will be interesting to see the difference between Obama revenge and Putin revenge. Jim
And this relates to the FANG subject how exactly?
See bullet point three, wise guy! Jim
Awhile back, there was a lot of talk about China’s “Ghost Cities” built in the middle of nowhere, and empty of people. My understanding is that many of those cities are now occupied and thriving communities, sometimes housing larger populations than Houston or Chicago. When you have over a billion people in a country, many of them rural people, but well educated, being displaced by more mechanized farming, and looking for new city type work, there needed to be places for them to go. The central government wasn’t too dumb, after all, it seems, in subsidizing developers to build whole metropolises. I understand there are more billionaires in China now, than in this country, and more showing up every day. Unlike here, that government, communist of not, seems to encourage wealth, through fewer restrictions on entrepreneurs. Of course, China is paying a huge price, in the form of pollution and lowered health.
So on Monday Obama signed a declamation to raise the debt limit to 20 tril..Boy that will look good on his CV.so I presume more printing,where else will it come from,trees?Boy, that boy knows how to make money.Silly question,but if a forger ran off few million,what charge would it be?OH I forgot he does it legally,I think
“FANG”. Very cute. Maybe that’s why I never got into those stocks – afraid I’d get bitten.
CROWD OR CLOUD ?
Americans love winners, so owning one of these internet stocks is seen as smart investing and not buying-in as either dumb money or losing out. Nobody seems to talk about the potential downside risk, nosebleed valuations, or the fact any one of them could suddenly correct sharply when earnings disappoint or sentiment turns negative ( Risk-Off). Paper profits are held hostage to the crowd.
Amazon at 929 X earnings is a share price that gives us all a stark reminder of the dot com bubble, at these levels there is only one way for this over priced ware house trader to go, all it will take is the next correction and this will be a better short than all the banks and indices put together, A 50% correction of this stock would still be overpriced, Amazon have been around long enough so where is the explosive growth to demand these high valuations.
I traveled in Europe for 20 years I prefer low profile travel by using private rooms in private homes. by utilizing this overnight stay I can hang on to my passport where as in hotels you have to give your passport up at the hotel desk. secondly I have made many friends by staying at private residences even with a language barrier such as in Germany Switzerland Austria or Italy. I’m not saying I’ve never stayed at hotels I have but I usually pick smaller less congested cities or in the case of attending a convention where there is tight security I don’t mind staying such as in Denmark or Norway. as a US citizen you should always try to dress like you’re part of the native population to take blend in. in Europe I’ve met many people who take two month vacations called holidays. the longest I was ever able to take was a three week vacation to India
Maby Russia will Join The rest Of The World In the Fight Of Terrace.!
Excellent encapsulation of what really, really, REALLY is beginning to smell like “pre-dot.com bust fever” affecting these names and some others as well. Yes, true, good ol’ Irrational Exuberance can propel a darling stock far beyond the parameters of reality, but any kind of real change in interest rate direction or other unforeseen exogenous event can derail it just as surely as history has already shown. You wanna step in at these levels? Be my guest.
Funny thing, Mike … Jim Cramer (Mad Money) coined the acronym FANG a few months ago. Interesting that you’re picking up on it now. Anyway, I’m glad that you’re finally opening your eyes to the rich opportunities that exist in the market for growth and profits. Welcome!
And these FANG stocks might just as easily offer ‘rich opportunities to go SHORT’.
Lots of people have lost a lot of money shorting AMZN (the highest P/E of the FANG group). So good luck!
I am with Negative Nancy on her statement. She is showing a lot of common sense. We are rushing out and borrowing money to buy junk that we do not need because the banks are practically giving money away my money for which I am getting almost zero percent interest. This glitzy IT explosion has got us all like kids in a candy store and if you can think back to your childhood you know what the ill effects of eating to much candy are.
HomeAway looks like the Uber for travel accommodation. It’s economic logic for tourist spending choices of hotels vs. private homes is not unlike that of Uber’s impact upon the taxi industry. Let’s face it, hotel accommodation has gotten very expensive and the leisure traveler is searching for big savings. If it can be packaged into safe, comfortable, easily accessible alternatives, somewhat like long stay bed and breakfast rooms at a discount, then this company has found a new source of big income in a “new” market shift.
This comment is not about anything in the newsletter today. Rather, it is about the VW scandal, which has not been discussed in great detail in this newsletter, but has been in several others I subscribe to. Why write to you? – Simply because you have an easy method of responding – whereas – some of the others do not. So here is my comment – for what it is worth.
My understanding of the VW scandal is that the VW engineers wrote some code, that “fooled” the smog test machines into thinking that the engine was putting out compliant tail pipe emissions when in actuality – the engine was emitting non-compliant emissions.
Now, my question is just how did this happen? Think back 10 years ago when you had to get a smog test for your car every year in order to renew your registration. OK – you had to go to the test station and get it tested. Today – you have to do the same thing.
Now the difference is that 10 or so years ago, the test station actually stuck a probe into your tailpipe and actually measured how much CO, NOX, BTE, etc. was actually being emitted from your tailpipe. Remember?
Now today, if you get a Smog test – what happens? The technician opens up the driver’s door and fiddles around under the dashboard and finds a computer plug in – device and pulls it out in order to plug in the test stations computer. He plugs his computer into your car’s computer and both computers communicate with each other. your car’s compute tells the test stations compute how many RPM’s it is doing and various other sophisticated data input. The test station’s computer “analyses” this input data and says – “based on the input data, it looks like this car is not putting out pollutants” – in machine language or course.
So – the Smog Test machine is not actually measuring what comes out of the tailpipe, as it did in the recent (but by today’s technology – antiquated) past. It just reports what the computer in the car is telling it! In short – VW managed to hack their cars’ internal computers and get them to lie to the test station’s computer. Now, we have a huge problem – why – because we trust in computer too much!
There is an old saying – “don’t trust everything you read in the newspapers”. Well we can add “the internet” and also “your car’s internal computer” to this list – as well as probably many other things.
So – maybe we should go back to actually measuring things as opposed to trusting computer analogs so much. After all – if they still stuck the probe up the tailpipe and measured NOX, CO. etc. VW probably would not be in the trouble they are now!
Reply to Randy: There are some good points here – but VW didn’t HAVE to get in trouble in the first place. They did it to themselves, because they saw a way to get around the pollution regulations. If USA testing were better (more like what you describe) then perhaps they wouldn’t have gotten away with it, but they might have found some other way – who knows.
Remember VW and a lot of other car makers produce lots of diesels that sell outside the US, polluting the air we all breath as it travels around the globe. And VW’s not alone in this – most of the European car makers sell diesels. So while VW’s trust meter just plunged to near zero, the diesel pollution problem was not created by having those cars on the road in the US. It was just brought closer to home.
However what will people think about the brand now? Trust is important when you buy a product, especially one as complex as a car. There is a lot of competition in the auto business and frankly, after the blatant lying that’s come out of VW how can you be sure that it’s cleaned up so you’d be willing to buy VW cars again? (I’m talking cleaning out the people responsible, which will be a lot harder than cleaning up the mess with the engines).
The bad trend happening in USA is job cutting and tax inversion strategy by pfizer to avoid US tax. Why Heinz is closing factories? where are they shifting? to china or mexico?
The question I would like answered is why (for at least the past 6 months), the world’s financial markets hang in awe of our monthly employment report, when the published number is notoriously unreliable, and subject to regular major revisions? The experts will provide a target “number,” say 175,000 jobs, but not be able to say what the market consequences are of exceeding or alternatively, failing to attain he “number”. If the number is so damn important shouldn’t everyone know the economic or market consequences of not meeting or beating the magic “number”? It seems like the whole exercise is like a game, like over/under on the game of the week, having nothing meaningful to do with actual employment or real economic conditions.
mike, you r saying China is in bad shape. no! i dont think so.
i noted the consumer discretionary (luxury goods) stocks /etfs are doing well at the same time as consumer staples(essential goods) are doing poorly.
also what is happening across the globe is inequality is rising this is because companies are paying poor wages and CEO pay is unreasonably high. so inequality is a problem. only wall street sluts get bonus i think. all the hard working operations guys get shafted.
You can’t speak of a disembodied “consumer-based economy” without a manufacturing-based economy (as that old song goes, “you can’t have one without the other”). Also, some of the shrinkage of large corporate employment could be due to an increase in middle-class employment. The overall figure on unemployment could indicate the answer to this.