By David Goodboy
FANG is an acronym for Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX), and Google (Alphabet) (NASDAQ:GOOGL). These are indeed the leading large-cap tech companies of the latter half of the second decade of the 21st century!
Fear gripped investors on July 26 as the social media giant Facebook gave back over $120 billion in value during a precipitous 20% plunge. The fall marked the most extensive single company dollar value loss of all time during a trading session. Investors were shaken to the core against the FANG stocks. However, the tech behemoths that make up FANG still paint a very bullish picture going forward. Those who acted on the buy the dip mantra with Facebook have been handsomely rewarded over the last several days. The rest of these stocks still have plenty of upside potential!
This article will first look at the FANG group as a whole then drill down into each stock with specific suggestions.
You will sometimes see the FANG acronym as FAANG. FAANG includes Apple. The reason I don’t include it in this article is, with a trillion dollar valuation, it is likely overvalued and therefore headed for a pullback. It will be a buy, just not at this time.
Reason #1: Generational Favorites
Every generation has its favorite stocks. Examples include auto stocks of the 1960s, large-cap consumer names of the 1980s, computer and internet stocks of the 1990s – 2000s, and today’s FANG names.
The FAANG stocks are an evolution from the original internet boom as the world wide web becomes mainstream for the present generation of active consumers. The internet has become the go-to source for shopping, socializing, and entertainment. The FANG stocks are riding this wave, and it will only get stronger as developing nations slowly but steadily join the online world.
Eventually, the next generation will move onto companies more efficient while providing a better experience. But, for now, the FANG stocks have upside to go!
Reason #2: Stocks Always Overreact
The stock market and individual stocks are notorious to over-reacting to bad news. Professional traders have always taken advantage of this stock market consistency. “Buy the fear, sell the greed” is another way to view price over-reaction.
Take Facebook as an example. Sure, the news was dire, but the stock soon started moving higher as institutional traders bought the dip. Those who jumped on the massive plunge have been amply rewarded over the last few trading sessions.
It is important to note that the same phenomenon occurs on the upside in stocks. Stocks often over-react on the good news to the upside. Savvy traders take advantage of this regular occurrence by shorting stocks that have spiked higher.
The lesson here is that any sharp sell-off in the FANG stocks should be considered as a buying opportunity.
Reason #3: Upside Momentum
The FANG group have added 10% to the market’s top line growth over the last 14 years. Also, the FANG group compounded at 31% since 2004, compared to just under 4% for the S&P 500 as Fundstrat’s Thomas Lee told Barron’s. What an incredible growth story.
Momentum often begets momentum in the stock market. The past growth of FANG stocks is an excellent signal for continued upside!
Reason #4: Innovations
One thing that can be said about the FANG stocks is that they are all continually innovating. It is these innovations that keep the companies relevant.
The innovation is part of FANG’s DNA. It is their very nature to be creative and continually innovating new products, services, and methods. This innovative spirit allows the FANG stocks to stay one step ahead of the countless competitors.
When innovation is combined with a war chest like R&D budgets, it creates a nearly insurmountable marketplace advantage for the FANGs.
Reason #5: Technical Factors
All the FANG stocks have set up to be solid technical buys. Each one is either a pullback play or breakout game depending on the chart pattern. Here are my suggested entry points on each FANG:
— Facebook makes sense as a buy right now at $183.00 per share.
— Amazon is set up correctly for an entry on a breakout of $1,907.00.
— Netflix looks like a buy on a breakout of $350.00 per share.
— Alphabet’s entry-level makes sense on a break of $1,267.00 per share
Risks To Consider: Interest rates and Chinese tariffs remain the unknown factors with the FANG stocks. Always use stops and position size wisely when investing.
Action To Take: Consider getting long on one or more of the FANG stocks!
Disclaimer: The author has no position or business relationship in any stock or company mentioned in this article. The author is not receiving compensation for this article. This article is intended for informational and entertainment use only, and should not be construed as professional investment advice.
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