FAANG stocks, a term coined by Jim Cramer, which includes Facebook-parent Meta Platforms, Apple, Amazon, Netflix, and Google-parent Alphabet, have been a coveted group of large-cap U.S. tech companies. The pack led the market rally over the last several years but has looked weak in 2022. Are FAANG stocks dead or are they still a good investment?
Cramer found the acronym FANG in 2013 and added Apple in 2017. However, in 2021, he bid adieu to FAANG and coined a new acronym “MAMAA” where he replaced Netflix with Microsoft.
FAANG stocks have crashed in 2022.
While the broader markets have fallen in 2022, some of the FAANG stocks have fared much worse than markets. Netflix is the worst-performing S&P 500 stock, while Meta Platforms is also among the bottom 10 with its over 50 percent YTD decline. Amazon has also lost a third of its market cap and is among the bottom 100 stocks of the index.
Apple and Alphabet have held relatively better and their price action is in line with the turmoil in the broader markets. Analysts have been writing obituaries of FAANGs for the last few months and in May Alliance Bernstein called FAANG “dead.” In February, Peter Cohen wrote a story on Forbes calling for the demise of FAANG and bet on AAA, which is FAANG minus Meta Platforms and Netflix.
Netflix and Meta Platforms reported dismal results for the fourth quarter of 2021, which led to a crash in their stocks. Netflix reported even more disappointing results in the first quarter of 2022 when its subscribers fell for the first time in a decade.
The FAANG is dead but some FAANGs are still a good investment.
Among FAANGs, Netflix has admitted to slowing growth and saturation in some markets. The company is now looking at cost cuts, an ad-supported version, and a crackdown on password sharing to boost its earnings. Meta Platforms’ growth has also peaked and unless its metaverse, which is still a few years away, delivers it also seems to have lost market leadership.
The other three FAANGs, or the AAAs, still look like a good investment though. While they may not command the kind of valuation premium as they did over the last three years, they are still leaders in their industry with a strong moat.
Forget FAANG and look at AAAs.
Apple is looking to enhance its target market and is expected to launch new products like AR/VR sets in the short term and electric and autonomous cars in the long term. Even Warren Buffett loves Apple stock and bought the dip in the first quarter of 2022.
Amazon also has a strong business model with a good moat. It's the leader in e-commerce and the cloud. Redburn analyst Alex Haissl believes that the company’s cloud business alone is worth $3 trillion, or roughly three times its current market cap. Alphabet also has a virtual monopoly in the search business and is expanding in other high-growth industries like cloud and AI.
Does it make sense to buy the dip in Apple, Amazon, and Alphabet?
There is short-term pain for Apple, Amazon, and Alphabet. Recession fears are rising and Micron predicted that smartphone sales would dip 10 percent in 2022. Also, slowing retail spending is negative for Amazon’s e-commerce business. The slowdown in global ad spending amid the economic uncertainty is a short-term negative for Alphabet.
That said, these three companies have a strong position in industries that are secular growth stories. While the FAANG might not be as relevant today as it was a couple of years ago, Apple, Amazon, and Alphabet still look like stocks worth having in your core portfolio.