Where the FANG shares are located in this wild market

<p>In 2013, CNBC’s Jim Cramer memorably named four of the market’s best technical stocks as “FANG shares.” The term was an abbreviation of their company name (at least then) and it stuck.

The name stuck in part because the four shares continued to lead the bull market in technology. And what a bull market it was. From March 9, 2009 to February 12, 2020, the technically heavy NASDAQ Composite increased by 674%. (That index technically entered a bear market in December 2018 and fell 21%, but it recovered losses in a few months.) It is a compound annual return of just over 20% for almost eleven full years.

But the FANG shares did even better. One of the four was not public in 2009. The other three received 6,810%, 3,470% and 940% respectively over the same distance. In other words, they crushed the index at the same time as the index published an unprecedented bull run.

In recent weeks, of course, the index and its components have fallen in the middle of wild trading. NASDAQ Composite closed on Friday with 20% from the end of February 19. That is with a gain of 9.35% on Friday – which followed a decline of 9.43% the day before.

The index’s largest shares have not been immune to sales, but it is difficult to say whether they have brought down the technology or lost it. In any case, investors seeking direction in this wild market should look to their leaders. And so it is worth investigating where the FANG shares are heading into what could be another wild week.

Facebook (FB)

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Facebook (NASDAQ: FB) has seen one of the more surprising sales in this market. As of February 18, the FB share fell 29% in just 17 trading sessions. This is a decline that exceeded larger market averages (including NASDAQ) – which seems illogical.

After all, Facebook’s business does not seem to be that cyclical. An economic downturn driven by Coronavirus fears would probably lead to a reduction in some advertisers on Facebook platforms (which also include Instagram and WhatsApp). Some small business customers may even go bankrupt.

But larger customers who want to reduce costs can also increase their spending on Facebook platforms in the hope of better returns through more targeted advertising. Commitment, however, seems unlikely to be affected. If anything, traffic to Facebook’s named platform may get a brief bounce when users check in on family and friends.

Facebook also has a staggering amount of cash. The company closed in 2019 with $ 55 billion in cash and no debt. So while the Facebook share price fell 29%, the company’s value (defined as market capitalization minus net cash) actually fell by 32%. More indebted companies that saw their stock prices fall by 20% or 25% may have only lost 10% or 15% of their corporate value.

And so this seems like an unmotivated sale, as our Matt McCall wrote this week. Even after Friday’s bounce, FB shares are trading – almost unbelievably – at less than 16 times the consensus earnings per share for 2021.

But investors need to keep an eye on the risks. Facebook’s expenses are not slowing down, which is an important reason why the share fell after the fourth quarter results at the end of January. The namespace platform may start to lose users or at least see lower engagement. There is a case that Facebook shares should have retreated, although it seems that the decline went too far.

Amazon (AMZN)

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The Amazon (NASDAQ: AMZN) stock is now sitting where it traded for most of last year’s fourth quarter. Both bulls and bears can see the fact as supporting their respective cases.

After all, many investors thought AMZN was expensive, if not badly overvalued last year. This long time has been the market’s most appreciated mega-cap stock, and skeptics have been waiting for the stock to crash for several years. There are undoubtedly investors out there who believe that the decline in AMZN, which is less than 18% from last month’s peaks, is just the beginning of a much-needed bill.

The Bulls would argue that this looks like a much better company than a few months ago, but the stock price is about the same. Fears of the company’s launch of one-day shipping put pressure on the stock last year, as higher costs put pressure on profits. But Amazon seemed to convince these fears with a fourth-quarter blowout report.

Q4 figures shattered estimates for both revenue and profits. The new shipping policy led to more sales which enabled Amazon to make better use of the extra costs. It suggested that, as it has done for several years, Amazon’s relentless focus on customer satisfaction would also satisfy the market.

The debate is likely to continue. But it is worth noting that this is now the third year in a row where Amazon’s market capitalization has cleared 1 trillion dollars. Each time the stock has withdrawn in a relatively short order, if for different reasons. AMZN looks attractive in the long run, but in the short run it may need some help from the market.

Netflix (NFLX)

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For a while, it looked like Netflix (NASDAQ: NFLX) was bulletproof. Already in early March, the NFLX stock was still trading above $ 380. With the exception of a short run after $ 400 in mid-2018, the stock was at its peak.

As the market decline accelerated, the NFLX stock finally broke and closed Friday at $ 336. Still, the news is hardly bad. The shares have still increased by 1.3% so far this year. NASDAQ Composite is less than 12%. Streaming rival Disney (NYSE: DIS) has fallen by 39%, although the theme park and cruise operations bear some of the responsibility.

The relative lack of exposure to market movements and macro problems makes sense. At this point, the intense debate over Netflix shares has really little to do with the broader economy.

It is unlikely that a recession will lead consumers to end their subscriptions. If anything, more cost-conscious consumers can speed up their “cord-cutting” efforts. From a short-term point of view, consumers who are now staying home may be able to watch more Netflix or pick up a new subscription.

The debate over the NFLX is as much about strategy as it is about valuation. Is the company’s ever-expanding content budget – about $ 15 billion in 2019, and managed to increase by 2020 – a wise investment for the future, or a sign that the business model simply cannot generate a consistent free cash flow? Can Netflix stop Disney, AT&T (NYSE: T) and Comcast (NASDAQ: CMCSA) from joining streaming wars?

If Netflix’s strategy is in place, its shares will rise. The company will dominate streaming for decades and print money when using existing content. If not, the stock is overvalued – and possibly bad.

It will take years before the NFLX battle is decided. It does not seem surprising that external factors have not shaped the debate so much.

The Alphabet (GOOG) (GOOGL)

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When Cramer first used the term “FANG shares” in 2013, Alphabet (NASDAQ: GOOG, NASDAQ: GOOGL) was still known as Google. For many investors, it still is (and moreover, “FANA shares” do not have quite the same ring).

As with Facebook, the sale of the GOOG share is somewhat surprising for roughly the same reason. The alphabet has an even bigger cash pile: $ 109 billion at the end of 2019, against just $ 4 billion in debt. Its online advertising business could probably also take shares from off-line rivals in a recession. Its “Other Bets”, especially self-propelled start Waymo and life science organization Sannerligen, seems to have little macro exposure.

Alphabet stock is more expensive than Facebook, with a little less than 20 times futures revenue. But the downside risk here seems potentially more limited. The online advertising industry has its challenges, including a certain level of marginal compression in recent years. Consumers can leave Facebook over time in a way that they are unlikely to Google, even if Microsoft (NASDAQ: MSFT) tries to gain market share with its Bing search engine.

That said, Alphabet’s stock is still trading over where it did as late as August. Investors have been wary of the name even in a more bullish market environment. If investors jump back in US equities, GOOG will no doubt bounce back. But to get back to better results, the Alphabet probably needs a catalyst. Aside from a first-quarter result team next month, it’s hard to see where that catalyst is coming from.

Vince Martin has been covering the financial industry for nearly a decade for InvestorPlace.com and other stores. He has no positions in any of the mentioned securities.