FANG Stocks

FANG is the acronym for four high-performing technology stocks in the market – Facebook, Amazon, Netflix and Google (now Alphabet, Inc.).

The term was coined by CNBC's Mad Money host Jim Cramer in 2013. Since 2017, the FANG list has been expanded to include Apple and the acronym is now referred to as FAANG.

FANG is an acronym for the most popular and best performing tech stocks in the market that have generated spectacular returns for their investors. The four stocks — Facebook, Amazon, Netflix and Alphabet — all trade on the NASDAQ, which measures the performance of more than 3,000 tech and growth stocks that are considered a reflection of the economy and capital market.

The S&P 500, which is based on the market capitalization of the 500 largest stocks listed on the NYSE and NASDAQ including FANG stocks, is considered the best representation of the U.S. market. As of August 10, 2017 — while the NASDAQ 100 was up 19% and the S&P 500 was up 8.9% year-to-date (YTD) — FANGs were up more than 2x that of the latter. Year-to-date, Facebook (FB) was up 45%, Amazon (AMZN) 27%, Netflix (NFLX) 36% and Alphabet’s Google (GOOG) 16%, beating the returns of both indices.

Within the S&P 500 index, FB, AMZN, NFLX and GOOG are ranked 5^th, 3^rd, 31st, and 8^th (and 9^th), respectively. (The reason that Alphabet’s Google has two positions is because the company has two class of shares currently trading on the public markets — GOOG and GOOGL — the difference being that GOOG has no voting rights and GOOGL does.) Because of their high ranking, FANG stocks have a greater impact on the value of the index than other companies. In effect, when they move up (or down), the overall market tends to also move up (or down), given that the S&P 500 index characterizes the market.

Each of the FANG stocks are big cap stocks that focus on technology and internet services. They are also considered growth stocks due to the continued emergence of technological devices like cloud storage devices, big data, social media and e-commerce tools. Financial reporting from the quarterly 13-F filing, which is required of all investment managers with over $100 million in assets, revealed that most prominent hedge fund managers have FANGs in their portfolios. The stocks were included as growth and momentum stocks by reputable funds like Berkshire, Soros, Renaissance and Citadel in the first quarter of 2017.

In the bull market of 2018, FANG stocks reached record valuations. On the back of its dominant position in e-commerce and cloud computing, Amazon became a trillion dollar company. Alphabet's shares reached a record high of $1,238.50 during the third week of August. In the third week of June. Netflix also touched a high of $411.09 in its stock price and Facebook reached a record of $209.94 in its stock price a month later.

But valuations for all four companies were among those hardest hit during a November market crash. Facebook and Google became enmeshed in regulatory and privacy problems while Amazon reported an earnings miss in the first quarter of 2019. Netflix increased the number of subscribers on its platform but that increase came at a cost to its overall earnings.

Although FANGs have consistently delivered positive returns, some analysts believe that these tech stocks are a mirror image of the tech stocks that delivered similar momentum prior to the dotcom crash. Because investors have priced high levels of growth into each of the stock valuations, this expected growth may be unsustainable. In June 2017, analysts in firms such as Goldman Sachs and UBS stated that the high valuations and unusual low volatility attached to these stocks are similar to tech stocks which crashed after the tech bubble burst in 2000.

Despite FANGs being compared to dotcom stocks of the late 1990s, most analysts agree that the upward momentum of these growth stocks is sustainable as long as there are more technological advancements to be made, especially in artificial intelligence (AI) and machine learning. While investors can diversify their value portfolio with these growth stocks, they should also be diligent in reading and understanding the fundamentals and metrics behind FANG stocks’ growing force.