FANG Is Dead, Long Live FANG!

 | May 15, 2018 | 4:04 PM EDT
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There, I did it. I am trying to get ahead of all of the naysayers who will come out of the woodwork Wednesday if Facebook (FB) , Amazon (AMZN) , Netflix (NFLX) , and Google, now Alphabet (GOOGL) have another down day like Tuesday.

Too jaded? Too jaundiced?

I don't know anymore. These stocks and other tech leaders have caught a cold and the market want to say that not only do they have a cold they also have the bubonic plague.

But while the stocks may be heading down, there's nothing dying here. There's no rats, no bubos, no devastation like the one that wiped out more than half of the populations of Florence and Siena -- two dynamite cities if you can ever get to them.

First, there's Facebook. What's happened lately here? I think that it is safe to say that the story of Facebook is the story of rapid adoption by advertisers of all sorts including many that had stayed away because they simply didn't understand the platform. I think that it is important to recognize that when we talk about 5G we are talking about something that will only make Facebook even more appealing. In the meantime the Cambridge Analytica nightmare seems to be behind them after many apologies and a committee of distinguished individuals including the former Republican Senator Arizona Jon Kyl, to examine political bias. I think a lot of the Republicans in Congress will say "if it is good enough for Senator Kyl it's good enough for me," closing the door on one of the company's biggest vulnerabilities.

At the same time we know from the conference call that Facebook is just beginning to monetize What's App and has only begun to scratch the surface of the gigantic local market.

Competition? We've seen that Snap  (SNAP) pretty much imploded when it did its re-design. Twitter's (TWTR) doing well but that 's not going to take away business. If anything it just expands the category.

Amazon? We know that its getting serious about advertising. We just learned that Amazon is testing a technology that will allow it to follow customers around the web to get them to come back to the online market place. Alphabet's Google has this technology and it's a threat but, again, I think that there's plenty of business for both.

Netflix? This morning Piper Jaffray came out with an outstanding survey that showed that the company can raise rates pretty much higher than they currently charge and not lose much business. Piper polled 1,100 domestic subs and found that the company could raise prices to $15 and two thirds of subs would absorb the increase. Wait, it gets better. Piper did an identical survey two years ago and the company didn't have that much stickiness. You have to conclude that the Netflix is benefiting from the original content that it creates.

Alphabet? This one's easy. Last week Alphabet had its developers conference and there were a huge number of oohs and aahs about Waymo, its self-driving car. I was kind of blown away that UBS said that Waymo could create $114 billion in revenues by 2030. That's a dramatic lift from the numbers other firms are using. CNBC's Phil LeBeau featured a Waymo self-driving shuttle today in Phoenix and the darned thing is pretty much ready for practice. I think that Waymo's upside is not in the numbers at all except in a real negative way, this is terrific news.

Now let's do some subbing. Let's say you think the A stands for Apple (AAPL) with a stock that's down for three straight days. I felt better about Apple than I have since it reported because this morning Toni Sacconaghi, one of the most respected analysts on Wall Street came out and said that he feels "incrementally better" about the longer term prospects of this revenue stream. Even though he damned it with faint praise, questioning whether the acceleration was sustainable he did say "We now see Apple as likely to hit its bogey of doubling services to $49 billion by the end of fiscal year 2020. " Believe me, given the skepticism that Toni has exhibited every point of the way, this is an astounding admission and makes me feel much more than incrementally positive that this is a stock you can buy into the market's weakness.

Let's swap out Netflix for Nvidia (NVDA) . Once again Nvidia's stock is being clobbered as investors reassess the company after that last quarter. The more I dig, the better I feel about the company's prospects in the data center, gaming, autonomous driving an artificial intelligence. I told members of the club that new investors will be getting another chance to get in as the stock goes down another 20 or so points, totally realistic given the way this stock trades.

If I am so confident about these and other high fliers, then why did they go down in the first place?

I know that there is plenty of chatter out there about how the 10-year Treasury has breached 3% decisively and therefore stocks should head down. Now I totally agree that companies with stocks that have less than 4% yields should be cautious. Why not? Many of the soft good stocks with outsized yields, stocks like Clorox (CLX) , Kraft Heinz (KH) , Coca-Cola (KO) and PepsiCo (PEP) are, indeed, getting crushed because their yields can no longer protect them, especially when the companies have failed to increase their prospects, unlike so many industrial and tech companies.

These stocks remain vulnerable if rates go higher because 1) they can't raise their dividends as fast as rates go higher and 2) rates are going higher because business is stronger and that makes these stocks unappealing anyway.

Second reason given for the decline? The break-off in talks between North and South Korea and the U.S. and South Korea performing joint military maneuvers. I think that anything related to North Korea that doesn't involve China isn't going to make me turn tail. China is the puppet master and we don't hear a peep out of them.

Now I know that higher rates are rarely going to inspire the buying of stocks but I think that the entire market is getting a well deserved breather led by FANG. Many of the big selloffs start like this. The next day we tend to get a further leg down that encompasses other growth stocks and also brings down the healthcare issues which drop when people are concerned about inflation, a natural inference of higher rates. Finally on day three we see the industrials and the banks crack but by then FANG will have resurrected itself after some downgrades and some nasty obituaries.

Why does it have to be like this? Why do we have to endure the endless burying of FANG and its compadres? Because, as I said last night, you are not going to see these stocks get a lot of positive chatter because they are so frightening when they go down. And it is always the case that those who can't take it in the end just throw them up and that's when you have to pounce. I urge you to recognize the ebbs and flows of these kinds of stocks and if you can't take the pain and you have good gains you can join the sellers and take a little off the table. No one ever got hurt taking a profit.

But here's the bottom line: I need you to steel yourself, and stay strapped to the mast as the sirens began to blare that FANG's dead and remember to say after that "long live FANG."

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