I recently joined a roundtable discussion hosted by Investing.com. The questions posed: Is The FAANG Bull Run Over and are Tech Stocks Still A Buy?
This was my answer:
The FAANGs trade is a little long in the tooth at this point, and, frankly, no trade lasts forever. Apple (AAPL), Amazon (AMZN), and Alphabet (GOOG) were all within striking distance of trillion-dollar market capitalizations, and Facebook (FB) was on pace to get there pretty quickly at the rate its share price was appreciating. There is still a lot of like about this group. All are leaders in their respective corners and all but Netflix (NFLX) and Amazon have extremely fat margins and large cash cushions.
But in the race to $1 trillion, valuations have gotten stretched, and growth looks more questionable. Social media is no longer new (a third of the world’s population is already a regular Facebook user) and Facebook’s business model is now under regulatory scrutiny. Smartphones are a saturated market, and Apple’s business model depends heavily on squeezing more revenue out of a base that is no longer growing. Netflix faces new competition from former partners, such as Walt Disney Company (DIS). Alphabet is still essentially a one-trick pony that depends far too heavily on advertising revenues from its search engine. Amazon is attracting unwanted political attention, and any or all of these companies could be the subject of antitrust action by the U.S. or European Union.
These are all strong companies and it makes sense to keep them on a watch list. But I’m not a buyer at current prices and this late in the cycle. The better trade today is in beaten-down value sectors. I particular like midstream energy and auto stocks at current prices.
You can read the other answers here.
Disclosures: Long AAPL