Are You Sharpening Your FAANG Positions Right Now?
If you are somewhat skeptical about the title of this article, you are forgiven. The “FAANG stocks” have had meteoric gains over the past decade. Some may wonder whether this is a bubble, just like the dot-com bubble. Rest assured, the FAANG stocks are not experiencing such a bubble. Nope, I didn’t say that myself. It is none other than Warren Buffett, the CEO of Berkshire Hathaway (BRK.A Stock Report) (BRK.B) who said so. Now that you are feeling better, read on.
For investors who’ve never heard of the FAANG stocks, I’m referring to:
- Facebook (FB Stock Report)
- Apple (AAPL Stock Report)
- Amazon.com (AMZN Stock Report)
- Netflix (NFLX Stock Report)
- Google, Alphabet (GOOGL Stock Report)
FAANG Stocks Proved They Are Immune To The Coronavirus
Many sectors continue to be devastated by the current pandemic. One bright spot is the tech sector, which has shown remarkable resilience during this time. In the past few weeks, the biggest tech companies reported their quarterly earnings. We know Amazon posted lower profits than anticipated.
Jeff Bezos also said the next quarter may not be profitable due to expenses associated with Covid-19. Nevertheless, the other tech giants posted strong results and had a great rally for the past few weeks. That said, if you watch closely, some of the tech stocks still have great upside potentials.
FAANG Stocks To Watch#1 Facebook
Sure enough, Facebook’s ad revenue is likely to take a hit as retailers are experiencing store closures and consumers are sheltering at home. Many investors may be taken aback by that. But it is good to know that there are catalysts they are missing out. The “Stories” format across all of its apps (Instagram, WhatsApp, Messenger and Facebook) has huge potential for improved monetization in international markets.
Stories & International Markets Are The Catalysts
Maybe you are not familiar with how “Stories” works. You will be glad to know it is a particularly promising ad format. Advertisers love it, probably because the format is typically full screen. That means it is viewed by highly engaged users. The growth of Stories advertising was 100% in Q4 of 2019 compared to the same period a year ago.
- Auto Stocks To Watch: Ferrari’s Worth More Than GM & Ford; Still A Buy?
- Should You Buy Disney (DIS) Stock At This Price?
One thing to note is that the ad revenue per user is still much lower in international markets compared to the US and Canada. We believe that these international markets will catch up over time. This will likely drive significant growth for Facebook and strengthen its position as one of the best tech stocks to buy now.
FAANG Stocks To Watch #2 Amazon
Amazon owes its success to its retail ecosystem. The company controls about 38% of all U.S. e-commerce. The company has been quite successful in keeping a good profit margin. At the same time, it has managed to retain loyal customers on its Prime membership.
But what attracted me towards Amazon is the company’s cloud-services segment, Amazon Web Services (AWS). AWS is growing at twice the pace of the e-commerce segment. Since 2018, AWS went from contributing 11% of total sales in 2018 to 12.5% of yearly revenue in 2019. AWS is poised for more growth.
It expects to defend its leadership in cloud computing, despite competition from other major tech companies. The global cloud computing market is witnessing double digit growth, thanks to the fact that more and more of our lives are moving online. We believe the upside potential we are seeing here could be unparalleled.
FAANG Stocks To Watch #3 Apple
The first iPhone was introduced by the late Steve Jobs back in 2007. It almost feels like a lifetime ago. Since then, the iPhone has been the primary factor driving AAPL stock prices. We are now on the verge of big changes in the future of Apple (AAPL). The earnings report this quarter could be signaling where the focus should be for the coming decade.
iPhone Down! Mac Down! iPad Down! Wearable & Services Up!
Tim Cook has conveyed his intent to move Apple away from being a products company to a wearable and services provider. The high operating margins in the wearable and services segment have grown at a double-digit rate. And that could be massive if Apple increases the scale of this segment. That said, without Apple’s aggressive push into services and wearables, the company would have been in a much weaker position.
Questions remain to be answered though. You may wonder whether Apple will continue to attract its existing customers to the iPhone. It is thus a smart move for Apple to introduce the budget-friendly iPhone SE 2020 recently when the economy is weak.
The thing is, iPhones still contribute to the bulk of Apple’s revenue. When Apple finally delivers its first 5G iPhone, might that just bring a further boost to the AAPL stock? Tell us what you think, leave a comment below.