Tolu is a cryptocurrency and blockchain enthusiast based in Lagos. He likes to demystify crypto stories to the bare basics so that anyone anywhere can understand without too much background knowledge. When he's not neck-deep in crypto stories, Tolu enjoys music, loves to sing and is an avid movie lover.
Five of the biggest stocks in the market, FAANG, aren’t performing as well as they used to and expectations by market analysts seem to be lowering consistently. Are the glory days officially over and can FAANG really be replaced?
Over the years, many investors have used several different methods and strategies, to ensure they have a strong enough position in the stock market. One sure way that pretty much guaranteed a significant passive income, was to buy FAANG (Facebook, Apple, Amazon, Netflix and Google/Alphabet) stocks and just watch them grow, as they are wont to do.
This method has driven not just profits, but a generally positive sentiment among investors for a few years. However now, it seems those glory days are slowly ending and FAANG stocks aren’t as sure as they used to be.
Records show that throughout last year, these stocks were not on a steady climb with profits as is usual of them. Specifically, FAANG stocks did well for one half of the year but by the other half, they all seemed to drop quite notably.
Facebook (FB), for example, fell the most last year and further lost 16% on its YTD (Year To Date) records. Apple (AAPL), which used to be the biggest stock on the entire market and was valued higher than $1 trillion at some point, lost its position to Microsoft late last year. Furthermore, Netflix (NFLX) also lost as more than 30% with Alphabet (GOOGL) dropping 15% as well. Generally, all the five have almost become shadows of their former selves.
The current sentiment among investors is that these drops might not yet be over and they are likely to keep falling regardless of the strength and size of these companies, further dampening investments. This is probably because the financial and economic clime in the world right now is largely plagued with a lot of insecurity due to trade wars and general economic instability.
According to David Lafferty, the Chief Markets Strategist with Natixis Investment Managers, all of the suitable terms which allowed FAANG stocks to bloom, seem to have disappeared.
“The conditions that have allowed these kinds of high-growth stocks to outperform have changed, if not reversed. The Fed’s tightening is getting to where it’s starting to hurt. GDP should decelerate in 2019, which will lead to a natural decline in earnings growth. What that means for multiples and investor sentiment is up in the air, but I just don’t see much upside.”
Is This Company More Profitable Than FAANG?
The market might now be paying attention to Brooks Automation (BRKS), a company which provides management, lifecycle, and automation solutions for related manufacturing firms. BRKS stock has performed quite remarkably, surging almost 330% in just 36 months.
Specifically, the company’s records show that all of its endeavors in terms of short-term investments, surged more than 140% from 2017’s $102 million to 2018’s $244 million. The company’s sales also shot almost 20 percent within the 2017/2018 year. Brooks also boasts of a mouth-watering net income in the same time, of more than 500%. Whatever Brooks is doing, it is doing right because both its investment and its own sales are making its investors quite proud.
Since the sentiment around FAANG isn’t very bullish at the moment, some market technicians are looking at Brooks as an alternative. One of such technicians, Ian McMillan, has specifically suggested that now might be “a great opportunity to step in.”
There are however those who still believe that FAANG stocks aren’t done yet. Boston Partners’ Director of Global Market Research, Michael Mullaney believes:
“The FAANG names are reminiscent of cult stocks, and I don’t think the cult effect has been broken.”