Do you know why you can't write off FANG? Because they are dynamic institutions, ones that don't sit still. The bears view them as static, which is why all of the demise stories prove premature.
For a moment, though, here's what I want to do. I want to elongate the acronym, I want to call it FAANNG -- Facebook (FB) , Amazon (AMZN) , Apple (AAPL) , Netflix (NFLX) , NVIDIA (NVDA) and Alphabet (GOOGL) -- and I want Apple and Nvidia added to the equation even if it reveals a spelling error and it sounds truly repulsive using my Philadelphia accent. Thank you Eagles, for giving us all from the City of Brotherly Love a reprieve from a terrible nasal twang.
Let's break them down, or unpack them, the word I keep hearing on conference calls and which reminds me of Samsonite or Tumi. Oh and let me save FB, the worst, for last.
Remember, we are describing the dynamism that makes you wrong so often when you write these companies, not just their stocks, but these companies off.
With that, let's go to Amazon. For years we viewed this company as a retailer. That's a huge total addressable market but it would still not merit the $766 billion valuation. No, what moved it to the next level was not one but two additions: the web services and the advertising businesses. The more I work on web services the more I realize that as much as I like the web service divisions of two other holdings of ActionAlerts, Microsoft (MSFT) and Google, they just can't get near Amazon for its capabilities. You want to be on the cloud you want to go to Amazon. I think the last spurt, the last $100 billion so to speak, came from the realization that Amazon can be a huge part of the advertising equation. It's a triple threat that bounces back faster than any company in the market.
Apple's stock has become divorced from Apple the company. That's because on various days Apple's stock is caught up in the technology maw and on other days it's about being the best consumer product on earth. Apple doesn't fare well among the tech analysts who follow it because they care about small scale surveys of parts suppliers or reports about how the X is lagging or that it's not innovating at the pace of other FANG members. But then there's the Buffett factor. That's the factor that talks about customer satisfaction being off the charts and the conundrum of how this stock can sell at 15 times earnings versus, say, Procter & Gamble (PG) at 18 or Colgate (CL) at 21, or Este Lauder (EL) at 33 time when all of those companies have competitors that people can sample and move to, at the drop of the hat, with only EL having much customer loyalty. Remember Gillette ? Who here is in Dollar Shave which just keeps coming and coming and coming.
Today's a day where the technology analysts and survey monkeys, pun intended, are generating the usual negative chatter. Hence the decline.
Netflix? Is it overvalued at $139 billion. I remember when it was overvalued at $25 billion. The issue here is that Netflix makes product people love and it lands and expands in whole countries in a way that's staggering. The consumer product companies have nothing on these guys, because it has become the default television state that everyone wants. I have 500 channels at home. I watch about a half dozen of them. But I watch only one Netflix. Whether it be the genius of Reed Hastings or the artificial intelligence behind so many of the moves, the stock of Netflix keeps going and going and going because it knows what we want. Do I think it is a better buy than say, Disney (DIS) at $154 billion. Absolutely not. I think that Disney's on-line offerings will soon be far better than any other company's, but it has to close on Fox (FOXA) first before it does, although I sanction buying the stock of Disney now for the patient.
The stock of Nvidia is worth $150 billion so it's worth being in FANG, especially considering that this $250 stock was at $25 in February of 2016. Now that's a FANG-worthy return. Nvidia made the best gaming graphical user processing chips. Then they made the best auto chips. Then the made the best cloud chips. Then they made the best data mining and artificial intelligence and machine learning chips. This is serial greatness, just extraordinary and it is happening because Jensen Hwang is right now harvesting chips that he dreamed up ten or twenty years ago to handle an immense amount of data without burning hot so that data centers don' have to be 100 football fields large. That's Nvidia.
How about Google? Here's one where not that long ago we were writing it off for their inability to police Youtube for nearby Crypto-Nazi ads. Remember that? They put their minds to it and they have, once again, become a preferred place to advertise. We always liked their search. All they have done is made it better and better. The next big innovation I was hoping for would be the best self-driving car. I still have high hopes that Waymo is the best but this recent fatality is going to cause somewhat of a pause in the industry. I think that Google remains the gold standard for the web and yet its price to earnings multiple has been contracting because the company's been too aggressive in its forecasts. That's why it keeps getting hammered on its EPS reports, and then comes back as people forget why they sold it.
Finally there is Facebook and what can I say? If it addresses its situation by bringing in a top-notch outside counsel like Paul Weiss -- who went to work on the tough NFL and Fox issues -- to investigate the issues, then we will trust them more. Paul Weiss is a chips-may-fall outfit. It would be fantastic to hear from Facebook directors like Kenneth Chenault of American Express or lead director, Dr. Susan Desmond-Hellman, a doctor who runs the Gates Foundation, or Washington insider Erskine Bowles. If we did, we would feel better about the situation.
But the most important thing to think about when it comes to Facebook is that those who cancel it off this breach really have no place to go. And they like it because it's become integral in their lives. Sure, many pan Facebook these days but they just move over to Instagram. I had thought SNAP (SNAP) could rival them but SNAP then changed its format. Twitter 's fantastic but it is not a comparable product. The reason why Facebook is allegedly in such trouble, and I write that because I haven't seen anything criminal and unless it is criminal it can be gotten through by damage control, is because it has virtual monopoly power.
So FAANNG lives because FAANG is dynamic not static, vibrant not stale, and inventive not dormant. Those who only seen what these are now are missing what they will see a year from now. And that's how you must view these incredible pillars of the technology world.