Why America’s Fang stocks still have some bite

Some people are afrais that the raise of the FANG stocks isn’t stable, but other people think it’s alright.


The famous “FANG” stocks that include mega-corporations like Facebook, Amazon, Netflix, and Google, have given their investors huge incomes. In five years there was a return of 150% for Google and about 850% for Netflix.

Being in one league with other huge companies like Apple, the heads of the FANG choose an approach of loyal following. This is connected to the tendency of speculations about the future condition of the companies that grow too fast.

According to Stuart O’Gorman who works as the manager of funds at Henderson Global Investors, Google was noticed to have made a brief pause. He says that the main worries now include the cost of advertising and that the users traffic goes from mobile to video.

Google, which was renamed to Alphabet, suffered an overall fall of 12% in roughly half a year. It has already restored a part of the fall, but the rise index of 3.6% looks a bit muted.

“Fundamentally the Fang stocks remain strong and they will continue to grow their revenues and earnings, but those expectations are already in their share prices,” says HyunHo Sohn, a fund manager at Fidelity International. “It is becoming increasingly difficult for those kinds of companies to grow even bigger.”

Last week Apple reported its first dip in annual sales and profits for 15 years. Although it is the most valuable company in the world, some analysts worry “peak Apple” has already been reached, whereby everyone who can afford an iPhone or iPad already has one.

Apple also had problems with supplies of its recently released iPhone 7. In Asia it struggles with competition from local companies such as OnePlus, Huawei and Xiaomi, which produce cheaper, slicker smartphones with larger screens — the smaller iPhone is difficult for users who read and write in Chinese characters.

Sales of Apple products fell 8 per cent compared with the previous year’s record of $233.7 billion. Its share price slid 9 per cent in the past year.

Yet while the market clings to the detail of every quarterly earnings statement, perhaps the bigger picture is being missed — it still sells billions-worth of products. “Apple’s users tend to be very loyal. Once you are in you don’t switch and they are starting to monetise that a lot better,” says Mr O’Gorman. Apple’s stock is trading at 12 times consensus earnings forecasts for 2017.

Apple’s users tend to be very loyal. Once you are in you don’t switch

Facebook is another stock that looks as though it is about to take a pause after rising 24 per cent in the past year. There have been signs that the social media giant is losing users to other platforms — losses it tried to stem by purchasing Instagram, the picture sharing site, and WhatsApp, the messaging service. However, it still had 1.1 billion daily users in September and posted increased revenue of $7 billion (£5.6 billion) for the third quarter.

“Facebook is growing its revenues by 55 per cent per annum. Even if that fades dramatically, investors will still be left with a business that has annual revenue growth of 20 to 30 per cent,” he adds.

There are pockets of growth too at Alphabet. The company is often criticised for spending on its “other bets” division, a part of the business devoted to futuristic technologies such as drone deliveries and artificial intelligence. Arguably that is a reason for investing in Alphabet; it has vast resources and may prove to be at the cutting edge of future science.

“We waited until we had clarity about that side of the business before we invested, but it is almost a hidden gem,” says Bertie Thomson, of Brown Advisory, the fund manager. Alphabet’s stock is trading on 19 times consensus earnings forecasts for 2017.

Perhaps the most controversial of the Fangs is Netflix. Despite its stratospheric growth in the past five years the share price has been more muted recently.

Fang, the big four tech stocks — Facebook, Amazon, Netflix and GoogleREUTERS

“It almost felt like the company was stuck in a rut in terms of its content over the first half of the year, with no major hit series for a period of time. This came at a point when Netflix was also raising the price of its service,” says Joshua Spencer of T Rowe Price, the investment manager.

Netflix has stumped up hits since — Narcos and Stranger Things, and The Crown series about the royal family launched yesterday — but the cost of increasing its subscriber base alongside competitors such as Amazon make it less compelling than the other Fangs, says Mr Sohn.

It is relatively small compared with the others, with a market cap of $50 billion against Apple’s $600 billion — and that could mean it is the one with the greatest growth potential. “It is not outlandish to say it could double or triple from here,” says Mr Spencer.

The expert’s picks
One of the best dedicated tech funds is AXA Framlington Global Technology, says Darius McDermott, a fund expert at FundCalibre. It invests in tech companies of varying sizes and tries to focus on newer opportunities in the sector.

An investment trust with experienced management is Polar Capital Technology. It has some unusual names as well as the well-known brands.

For a general investment fund with a slant towards technology, consider the Scottish Mortgage investment trust. It focuses on global equities and is respected.

There are tracker funds too, including L&G Global Technology Index,for example.

Do you know a Bric from a Mint?
It seems you can’t be a serious investor unless you have a good grasp of the growing number of acronyms that pepper the language of many financial commentators, (Mark Atherton writes). Ever keen to assist our readers, we offer a mini guide to the acronym maze.

● Brics: refers to the giant emerging market nations of Brazil, Russia, India and China. It is credited for helping to popularise investment in emerging markets in the mid-2000s.

● Mints: stands for Mexico, Indonesia, Nigeria and Turkey, and represents the proposed successors to Brics among emerging market nations. So far they have struggled to gain the recognition that Brics achieved.

● Fangs: gives a nod to the importance of technology companies. Facebook, Amazon, Netflix and Google (renamed Alphabet) are all large companies based in the US.

● Nosh: Nike, O’Reilly, Starbucks and Home Depot are lower-tech, but equally consumer-orientated rivals to Fangs.