It's very tempting, after this magnificent and what now seems like long-in-the-tooth rally, to say "I hate FANG, I have overstayed my welcome and I am glad they have come back and now it is time to go."
You know that anointing Facebook (FB), Amazon.com (AMZN), Netflix (NFLX) and Google (GOOGL) as the new leaders in this market is tantamount to jinxing them, although they have been fabulous performers since the crowning. Why not just declare victory? Or, even more critically, why not say sell them all?
If you tell people to continue to like them and they go up, you aren't going to get any credit. But if one of FANG blows up, you could be a national hero for blowing the whistle.
In fact, the risk-reward is as asymmetrical as the risk-reward you have if you are a bear here. We've just had a huge two-day rally. But think back to Monday. How many bears did you hear from that day who scolded you for making all that money being long stocks that were propped up by the Fed's cheap money? How many advocated panic as a strategy because the world was coming to an end?
And how smart did they look at the end of Tuesday's reversal? You probably said to yourself "I cannot believe how smart those guys were about how the Fed should have raised rates and I have to dump everything because, well, it's over."
But now that we are back to even, who cares about them? Lauded one day and then not thought of the next. That's a fabulous risk reward. However, if you champion FANG and one of them goes off the rails, you are a multi-year Youtube train wreck.
Nevertheless, what the heck am I supposed to do? I think Action Alerts PLUS portfolio holding Facebook, for example, is one of the fastest-growing, most consistent companies ever born, and it can easily clear $3 next year. Given that it's growing at about a 30% increase in earnings, how am I supposed to tell you to sell, sell, sell, a company trading at one times its growth rate? That would be downright ludicrous to me. It's been a terrific stock to buy into this selloff and I now think it can go to $100, which is why my charitable trust owns it.
What about Growth Seeker portfolio holding Amazon.com? Harder. I have no valuation parameters that fit this one. That's because, however, the company deliberately suppresses earnings power in order to increase its opportunities to dominate world retailing. Now, until they lifted their skirt a bit and told you about the profitability potential of their Amazon Web Services business, you had a right to be skeptical. Not anymore. And, let's face it, if they wanted to increase the price of Amazon Prime by 50% wouldn't you pay it? Given the relative bargain vs. all other shopping, I bet you would.
I have been making the same Netflix case I am about to make for almost three years now: the market capitalization is too small for the opportunity. Every two or three years, I find a company with that kind of characterization and it isn't an alibi, some lazy way of thinking that allows me to hold on to a momentum stock. Netflix, like Amazon, could double, no, even triple its service per month and people would still love it worldwide. It's a global content company with very low content costs, and I think it is worth $100 billion judging by where its subscriber growth trajectory takes it and how much more money it could charge.
Finally, there's Google, another stock we hold in the Action Alerts PLUS portfolio. Until this recent reorganization, we really had come to disrespect Google the stock as the plaything of managers who acted like it was a private company. Given the dual classes of stock, they could easily get away with it. All that's changed now that Ruth Porat, late of Morgan Stanley (MS), has become the CEO. Now the earnings leverage will shine through given the break-off of the venture capital arm and you will see you are buying one of the fastest growing companies on earth more cheaply than Clorox (CLX) or Kellogg (K). Yep, 20x earnings.
So sure, someone could say tomorrow "FANG DEFINES THE TOP." Another could pick apart one of these, and damn all of FANG. I am stuck liking and defending them, and I don't want to be a profitless hero.