What if FANG comes back? Is anybody ready for that move? Are all the hedge funds gone? Is it no longer crowded with managers who wanted high growth but have now turned on these stocks?
Perhaps it is worth it to remember how fabulous these companies are so we can understand why they can come back some day and should not be written off. They are disrupters that know how to do things and change things on the fly and they are not worth the contempt and scorn that has been shown to them of late. Let me go over the point counterpoints on them so you know what I am talking about.
First there is the F, Facebook (FB) . Today we got a slew of price target cuts and a lot of chatter about how the turn is a work in progress. I think that what mattered is that a turn is possible. It seems after all the negativity and disappointment on Wall Street which definitively soured on the stock, the consumer packaged goods companies chose not only to stay with Facebook but they are spending a ton on Instagram stories. I believe that Facebook will be able to monetize many of their other products and while I can't say it is back, I can say that it is now in underpromise/overdeliver mode particularly on expenses. Facebook screwed up and the traditional media blasted them but how else are you going to get in touch with a demo that doesn't read or watch TV? Facebook's the way to get it done. I eyeballed the earnings estimates from the key firms that follow it and they are clustered at a little less than $8 for 2019. Even if you give it a 16 PE - the same price-to-earnings model that the average stock has, even as it hardly is the average company, growing at 20%, you get a $160 stock. I would argue that given its expense control it deserves to trade at a multiple equal to, say Clorox (CLX) , which would put it at $184.
Amazon (AMZN) ? Talk about a despised stock. This one was at $2000 one month ago. Not it is in the $1500s after spending some time in the $1400s. Theoretically every one of its major businesses has been challenged of late as people try to figure out how it could have a great bottom lie but come up short on the top line. They said that advertising must be slowing down. They said that Amazon Web Services is getting beat by Azure after that terrific Microsoft (MSFT) quarter. Moreover, we got a second leg down when smart money said that IBM's (IBM) Ginni Rometty teaming up with Jim Whitehurst at Red Hat (RHT) had to slow Amazon's webs services growth. Then it got crushed by a new theory: Amazon, which is now paying workers $15 an hour, is losing share to Walmart (WMT) and Target (TGT) which aren't even giving their employees' wages. They are playing to the strong suit, boasting about how brick and mortar omnichannel is the most convenient way to shop and that has Amazon holders in a tizzy.
Me? I think that Amazon is offering a fabulous opportunity for advertisers to appear at the point of sale. I do not think that Red Hat teaming up with IBM is going to hurt Amazon Web Services which Red Hat has a great relationship already. I would like to see IBM overtake Amazon Web Services but I can't see that happening. It's a huge market anyway and I do not think voice, the internet of things, shopping or advertising are slowing down when it comes to the web channel.
Netflix (NFLX) reported a spectacular quarter but it didn't take the stock up because we were in the grips of the downturn. I think down one hundred points from its high, having lost a quarter of its value based on, well valuation, it's intriguing.
Alphabet (GOOGL) is the biggest quandary of all. I thought the company had a pretty terrific quarter with better than 20% growth. The mistake they made, I believe is, like Amazon, getting the forecast wrong. Amazon got the bottom line wrong, way too high. But the revenue is what mattered and it blew up on that. I think Alphabet got both wrong. Still I thought it was a great call and I don't' want my thinking to be clouded by the huddled masses yearning to be free from Alphabet. Plus, today we learned that Waymo has gotten the go ahead to start the real commercialization of its self-driving car unit, Waymo, at least in California. Self-driving cars are not in the numbers - they were barely talked about on the call. They give analysts who still like it a chance to promote the stock if it goes up which is what they do. They don't want to touch it when it goes down
Now we have a lot of lunacy in this market. Last night after Facebook reported, its stock went up about three points then down about 10 points and then rallied and stayed in the mid-$140s up a few. At the time I was watching the rest of FANG like a hawk. Do you know that Amazon, Netflix and Alphabet declined and advanced commensurate with every single zig and zag in after hours trading?
That's the power of pernicious ETFs speaking. They wreck one, they wreck them all and as we can see today they can boost them all simultaneously too. That's so stupid. They are all so different. Sure they compete at different points in their life but you know what they really have in common? The fact that put together they spell the word FANG which is why we created the play on words acronym five years ago.
I never thought I would say this but I rue the day that we put this silly thing together because now they are all foolishly joined at the hip in instant fashion. There are 10 ETFs that link them so they can be considered one stock. If Facebook rolls over they all roll over.
That's what money management has become about.
Now there's one other point I want to make. FANG is by no means out of the woods. There are also ETFs that spell FAANG with two As and tomorrow Apple (AAPL) reports. It is entirely possible they talk about a Chinese slowdown. They might have a miss in service revenue. There could be some issue that I haven't thought of, some revenue miss that I am not counting on that will make my admonition about owning-it-not-trading-it momentarily look bad, just as Facebook, Amazon, Netflix and Alphabet have looked bad and, unlike the true FANG, Apple's stock is barely down from its highs. So get ready for more volatility which his code for the vicious exaggerated declines that the ETFs give you. Plus, the charts are all terrible for these stocks. And the newly reformed Facebook could still rollover intraday.
But don't forget those pesky fundamentals that allowed these companies to disrupt whole industries endlessly even if the companies are unable to forecast as well as they would like given the currency, the rules, the fines, the headlines and the gang up and all sorts of other vicissitudes that occur when you have hundreds of billions of dollars in play.
