It has been generations since investors faced such a difficult year on Wall Street. By mid-2022, the benchmark S&P500which is considered the most comprehensive stock market barometer, recorded its worst first-half return in 52 years!

Despite this turmoil, Wall Street’s brightest and most successful fund managers have remained entrenched. According to Form 13F filings with the Securities and Exchange Commission, most billionaire fund managers were active buyers as the stock market plunged into a bear market during the second quarter.

However, sentiment was clearly mixed when it came to FAANG stocks. By “FAANG”, I refer to:

• Metaplatforms (META -4.15%)formerly known as Facebook
• Apple (AAPL -3.77%)
• Amazon (AMZN -4.76%)
• netflix (NFLX -4.57%)
• Alphabet (GOOGL -5.41%) (GOOG -5.44%)formerly known as Google

Among these industry leaders are two FAANG stocks that the billionaires bought hand in hand, as well as one FAANG that they avoided like the plague.

FAANG shares’ No. 1 billionaires buy hand in hand: Alphabet

Alphabet, the parent company of streaming platform YouTube, self-driving car company Waymo and widely used internet search engine Google, is the first FAANG component that billionaire fund managers can’t seem to get enough of.

Based on recent 13F filings, a number of high-profile billionaires have increased their stakes in Alphabet. This includes Stephen Mandel of Lone Pine Capital, who opened a position of nearly 3.44 million shares during the second quarter, as well as Chase Coleman of Tiger Global, Ken Fisher of Fisher Asset Management, and John Overdeck and David Siegel of Two Sigma Investments. Tiger Global, Fisher Asset Management and Two Sigma purchased approximately 2.21 million shares, 1.36 million shares and 1.05 million shares respectively.

One of the best reasons to buy with confidence from Alphabet is the company’s primary internet search segment. Over the past two years, Google has held up to 93% of the global Internet search market. With its nearest competitor 88 percentage points behind it, Google is in a position to wield leading pricing power when placing ads on search pages. This is a competitive advantage that is not going away anytime soon and should allow parent company Alphabet to benefit from periods of disproportionate economic expansion.

However. It’s Alphabet’s ancillary operations that many investors find even more intriguing. YouTube has become the second most visited social media site in the world, while Waymo appears to be light years ahead of the electric vehicle kingpin You’re here in terms of introducing autonomous vehicles into our daily lives.

But it’s cloud service provider Google Cloud that could be Alphabet’s biggest long-term asset. Cloud spending is still in its infancy, and Google Cloud has already gobbled up 8% of global cloud infrastructure spending, according to a Canalys report. Although Alphabet’s cloud segment is currently a loser, the margins associated with cloud services are often considerably higher than the margins generated by advertising. In other words, Google Cloud may be Alphabet’s key to multiplying its operating cash flow.

FAANG Stock’s No. 2 Billionaires Buy Hand in Hand: Amazon

The second FAANG that billionaire fund managers have bought in spades is e-commerce giant Amazon.

During the second quarter, half a dozen of the brightest billionaires gobbled up Amazon shares: Jeff Yass of Susquehanna International, Overdeck and Siegel of Two Sigma, Fisher of Fisher Asset Management, Ken Griffin of Citadel Advisors and Philippe Laffont. of Coatue Management. . In order, these billionaires oversaw the addition of almost 6.59 million shares, 1.83 million shares, 1.38 million shares, 1.26 million shares and 1, 09 million shares to their fund.

For many investors, Amazon’s allure has always been its top online marketplace. In terms of U.S. online retail sales, Amazon has more than five times the closest competitor’s share and generates more revenue from online sales than its 14 closest competitors on a combined basis.

But the reality is that online retail sales are a low-margin revenue stream for Amazon. Far more important to the company are its ancillary sales channels, which generate juicier operating margins. For example, Amazon has gradually become an advertising juggernaut. Even in the difficult second quarter, ad sales jumped 18% from the year-ago period. Advertising margins are significantly higher than online retail sales.

Amazon has also taken advantage of the popularity of its online platform to sign up more than 200 million people for its Prime service. Based on the company’s second-quarter operating results, it generates nearly $35 billion in annual sales from transparent, high-margin subscription revenue.

And don’t forget Amazon Web Services (AWS), the world’s leading provider of cloud infrastructure services. Even though AWS only accounted for 16% of the company’s net sales in the first six months of 2022, it reported more than 100% of its operating profit over the same period. AWS is Amazon’s golden ticket to potentially tripling its cash flow by mid-decade.

FAANG Stock Billionaires Avoid: Netflix

On the other hand, a FAANG action sent billionaires running for the exit. Since its share price fell off a cliff earlier this year, billionaires have largely avoided streaming provider Netflix.

Filings with the Securities and Exchange Commission show that four billionaires reduced or exited their Netflix positions entirely during the second quarter. This included Bill Ackman, whose Pershing Square Capital Management is winding down, Steven Cohen’s Point72 Asset Management, Laffont’s Coatue Management and Griffin’s Citadel Advisors. In total, these four billionaires respectively withdrew about 3.11 million shares, 231,000 shares, 201,000 shares and 141,000 shares from their fund.

For years, Netflix has been the kingpin of streaming content. Its combination of exclusive shows, domestic streaming dominance, and potential for international expansion into untapped markets has made it a popular buy. But times have changed, and so has Wall Street’s opinion of Netflix.

Competition in the streaming space has rapidly intensified as traditional cord cutting has prompted legacy content providers to suspend streaming packages and deals in front of users. The “House of Mouse”, waltz disney (SAY -2.89%), is a perfect example of a streaming provider capitalizing on its own content and branding. In less than three years since the launch of Disney+, the company has gained over 152 million subscribers. It took Netflix more than a decade to hit those numbers after shifting its focus from DVD rentals to streaming. It is particularly interesting to note that Disney is gaining a significant number of subscribers while Netflix is ​​experiencing a drop in subscribers.

The other big issue for Netflix is ​​the company’s cash generation. Even though Netflix was profitable on an adjusted basis, the company had been burning cash for a long time as it spent aggressively on new content and international expansion. Although it appears to have turned the page on breathtaking cash burns, the net cash provided to its operations has been negative or negligible in four of the past five quarters.

While Netflix is ​​about as cheap as it’s ever been on an adjusted earnings basis, the company’s minimal cash flow and increased competition serve as a warning to investors.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a board member of The Motley Fool. Sean Williams holds positions at Alphabet (A shares), Amazon and Meta Platforms, Inc. The Motley Fool holds and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Meta Platforms, Inc., Netflix, Tesla and Walt Disney. The Motley Fool recommends the following options: January 2024 Long Calls at $145 on Walt Disney, March 2023 Long Calls at $120 on Apple, January 2024 Short Calls at $155 on Walt Disney, and March 2023 Short Calls at $130 $ on Apple. The Motley Fool has a disclosure policy.