2 FAANG stocks to buy now and 1 to avoid
It’s been nine years since CNBC Business News personality Jim Cramer coined the acronym “FANG,” which was later expanded to “FAANG,” to describe a group of game-changing American tech companies. This cohort is made up of:
- Facebook, which renamed itself Metaplatforms (META -4.15%)
- Amazon (AMZN -4.76%)
- Apple (AAPL -3.77%)
- netflix (NFLX -4.57%)
- Google, which renamed itself Alphabet (GOOGL -5.41%) (GOOG -5.44%)
Of those five companies, Netflix is the only company that hasn’t reached a trillion-dollar market valuation at some point since then. But despite the strong growth this group of stocks has already seen, some may still have much more potential.
We asked three Motley Fool contributors to focus on FAANG stocks. Here’s why they think there are still upsides in Apple and Alphabet, but Netflix stocks are best avoided for now.
An apple a day keeps bears away
Anthony Di Pizio (Apple): Recommending Apple stocks isn’t exactly a bold call. It’s one of the most popular companies among investors of all skill levels – after all, it accounts for 42% of the value of Warren Buffett’s stock portfolio at Berkshire Hathaway (BRK.A -2.63%) (BRK.B -2.74%). But it’s also exactly the type of stock that investors will benefit from holding during times of market turbulence.
The Nasdaq 100 The tech index is down 21% so far in 2022, but Apple stock is down just 7%. Its hardware products such as the iPhone, iPad, and AirPods continue to sell incredibly well. Additionally, its services segment is driving strong growth through subscription offerings like Apple Music, iCloud, Apple TV and its innovative Apple Pay platform, which recently expanded to buy now, pay later “.
In terms of revenue, Apple has just had the third most lucrative fiscal quarter in its history: it posted record revenue of $82.9 billion for the period ending June 25. . That represented just 2% year-over-year growth, but the company commented that the number of active Apple devices installed reached all-time highs in every product category and in every geographic segment. This shows that demand remains strong for Apple products among consumers, even as high inflation and rising interest rates squeeze their budgets.
And while overall revenue growth was relatively modest, Apple’s services segment sales grew 12% in the quarter. This is important because its services segment gross profit margin is 71%, which is significantly higher than its most recent hardware segment margin of 52%. As services become a bigger part of Apple’s business, investors can expect more of its revenue to trickle down to the bottom line.
The icing on the cake of buying Apple is the huge amount of money it is currently returning to shareholders. Its current stock price dividend offers a small 0.55% annual yield, but it repurchased nearly $65 billion of its own stock in the first nine months of fiscal 2022, making every share which remains in circulation more valuable.
Need informations ? Just Google.
Trevor Jennewine (Alphabet): Google is the best known of Alphabet’s many companies. It’s the go-to search engine for billions of people, and Google Search currently has a 90% market share. This advantage has allowed the company to accumulate a lot of consumer data, and its ownership of YouTube – the second most popular video streaming service by watch time – has only strengthened its ability to engage. consumers and collect their data.
Together, these web properties have made Google an indomitable force in the digital advertising industry. Although its market share in this sector has fallen by a few percentage points in recent years, Alphabet still absorbed 28% of global digital advertising expenditure in 2021. In addition, its strong presence in online search and media streaming should keep it at the forefront of digital advertising for years to come.
Meanwhile, Alphabet is also gaining momentum in cloud computing. Fueled by its investments in data analytics, artificial intelligence and cybersecurity, Google Cloud captured 10% of the cloud computing market in Q2 2022, up from 8% in Q2 2021 and 6% in Q2 2020.
Unsurprisingly, Alphabet’s strong market positions in high-growth sectors have translated into strong financial results. Its revenue soared 26% to $278 billion over the past four quarters, and its free cash flow climbed 11% to $65 billion. Better still, investors have good reason to be optimistic about the future.
Businesses will spend more than $600 billion on digital ads in 2022, according to eMarketer, and it projects that figure will reach $875 billion by 2026. Additionally, according to Grand View Research, cloud computing spending is expected to increase to an annualized rate of 16% to reach $1.6 trillion by 2030. These tailwinds are expected to keep Alphabet growing steadily for many years to come.
Finally, Alphabet may still have other tricks up its sleeve. The company’s “Other Bets” segment today includes an assortment of unprofitable subsidiaries such as self-driving technology company Waymo, artificial intelligence research organization DeepMind, and life science research organization Verily. It’s too early to bet on meaningful contributions from these companies, but any of them could provide Alphabet with its next big win.
For all these reasons, this FAANG stock is worth buying today.
A “growth” stock without strong growth
Jamie Louko (Netflix): There’s no doubt that Netflix has led the charge in the streaming revolution, and its scale today reflects that: the company generated nearly $8 billion in revenue in the second quarter and it attracted more than 220 million paying subscribers worldwide. However, Netflix may not be the best stock to load now due to the increasing competition it faces.
When streaming was in its infancy, Netflix was one of the only games in town. Now, however, it faces intense competition: Alphabet’s YouTube TV and disneyit is (SAY -2.89%) Hulu and Disney+ are all fierce rivals in the competition for viewers’ attention on streaming media. In fact, Disney recently overtook Netflix as the biggest streaming service provider, with 221 million subscribers across all of its services combined.
The intensification of competition is weighing heavily on Netflix’s finances. In the second quarter, its revenue growth fell below 9% on an annual basis – the third slowest quarterly growth rate in its history as a public company. What isn’t slowing down, however, is his spending. The company continues to invest heavily in new content and marketing. As a result, its operating profit fell 15% year-over-year in the second quarter. Yet, based on his high-level struggles, those investments bear little fruit.
Netflix now trades at just 20 times earnings. That’s a steep discount to rivals like Disney, which trades at 67 times earnings. However, Netflix no longer looks like the company it once was, and there are better options for investors among FAANG stocks. Consider buying one of the strongest FAANG stocks instead of betting on Netflix, which is looking more like a value trap than a bargain right now.
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. Anthony Di Pizio has no position in the stocks mentioned. Jamie Louko holds positions at Amazon, Apple, Berkshire Hathaway (B shares) and Walt Disney. Trevor Jennewin holds positions at Amazon and Walt Disney. The Motley Fool owns and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Berkshire Hathaway (B shares), Meta Platforms, Inc., Netflix and Walt Disney. The Motley Fool recommends the following options: $200 long calls in January 2023 on Berkshire Hathaway (B shares), $145 long calls in January 2024 on Walt Disney, $120 long calls in March 2023 on Apple, short calls of $200 in January 2023 on Berkshire Hathaway (B shares), January 2023 short calls of $265 on Berkshire Hathaway (B shares), January 2024 short calls of $155 on Walt Disney and March 2023 short calls of $130 on Apple. The Motley Fool has a disclosure policy.