FAANG Stocks | What They Are, How to Invest, & Helpful Tips
What Are FAANG Stocks?
The FAANG stocks – Facebook Inc. (NASDAQ: FB), Amazon.com Inc. (NASDAQ: AMZN ), Apple Inc. (NASDAQ: AAPL), Netflix Inc. (NASDAQ: NFLX), and Alphabet Inc.’s Google (NASDAQ: GOOG) – have been some of the hottest investments over the past few years.
In 2013, financial TV host and The Street’s co-founder Jim Cramer coined FAANG, which he defined as “the quintessential modern tech tale.” Since then, the moniker has grown into a whole category—FAANG!
These enterprises continuously dominate their industries; have gained general approval for being used on mobile devices; make up more than 50% of the S&P 500 Index’s market capitalization. Many view the performance of the FAANG as a reflection of the economy’s health as a whole.
If you are thinking of investing in FAANG stocks, there are a few things you need to know. In this guide, we will take a look at what FAANG stocks are, their investment potential and some of the risks involved.
Facebook stocks are a fantastic investment and one of the key components in FAANG stocks. They are a great way to diversify your portfolio and one of the best tech stocks to acquire for long-term growth.
“Although it is highly popular among amateur investors who appear to buy any stock associated with a social media company to reach financial success rapidly, I do not have faith in Facebook’s stocks.” That statement comes from Jim Cramer on CNBC’s Mad Money show.
At number 5, Facebook is only behind Apple and Alphabet when measured by market capitalization. In truth, it’s the 7th largest company of its kind in America. When you consider that Facebook owns two of the world’s most popular social media apps (Facebook and Instagram) and two leading messaging platforms (WhatsApp and Messenger), it becomes clear that they have a monopoly-like grip on their industry. And if we are looking strictly at internet stocks, Facebook’s ratings are among some of the highest over any time frame.
Jim Cramer does not recommend investing in Facebook for several reasons: the stock is expensive, growth has slowed down, it faces competition from all sides, and there are regulatory issues.
Is Facebook expensive but worth it? He states, “It trades for around 40x trailing earnings with a forward P/E of 30. That is a high price, but it pays off for those who bought when Mark Zuckerberg first made the company public.” You can see that Facebook is trading at a P/E ratio of around 40x trailing and about 30x forward earnings. In comparison, Apple trades at 14x trailing earnings and around 13x forward earnings; Alphabet trades at 22x trailing earnings and 20x forward earnings. Evidently, Facebook stock is much more expensive than the average large-cap stock in America.
All companies will reach a point where their growth rate slows down. No company can sustain that level of growth indefinitely.
Facebook is profitable and growing at a rapid pace. It has never reported a loss since it became public ten years ago. Even though its sales growth has slowed from 120% in 2016 to an expected 76% in 2017, this figure remains significantly above average. Furthermore, earnings per share have increased by over 50%. Finally, the company’s net income rose from $1 billion in 2012 to an astonishing $10 billion in just five years – incredible for any business of Facebook’s size.
Amazon is an excellent illustration of disruption in today’s economy.
Amazon began as an online bookseller and has become the most important e-commerce firm, upsetting centuries of commerce norms. Amazon has been able to capitalize on its size by lowering prices on millions of items and offering free delivery for many items—a subscription service it also provides to non-Prime members at a cost. Analysts predict Amazon’s revenue will grow at a compound annual rate of 20% over the next several years. The stock has appreciated almost six-fold since early 2012, but it still sells for less than half its all-time high set last year, owing to worries about future competition and profitability.
Amazon’s net income has risen at a double-digit rate since 2012, and its revenues have grown to over $177 billion in the last four years. Its operating margin is more than 20%, considerably exceeding the industry standard. Amazon’s earnings growth is more significant than any other firm in the S&P 500 Index.
Amazon makes most of its money from transactions on its platform. According to statista.com, Amazon accounted for 37.8% of all online and offline retail spending in the United States through June 2022, more than twice what Walmart took home during the same period. It has such an expansive marketplace that it clocks in almost half of all e-commerce transactions in the United States. And this number continues to grow–in 2011 and 2012, their market share was only a third.
Amazon’s dominance in e-commerce allows it to disrupt nearly every major sector, as consumers switch from visiting physical stores to purchasing everything from apparel and food online. Amazon has already disrupted book retailing (it works directly with publishers), toy selling, grocery purchasing, consumer electronics sales, housewares sales, and semiconductors. It has also impacted big-box stores such as Best Buy, Target, and Walmart. It has just started developing original media output, including a multiyear agreement to stream Thursday night NFL games on its Prime streaming service.
Amazon.com’s cloud computing unit, Amazon Web Services (AWS), aided the company’s revenue expansion in 2017; the firm has stated intentions to construct data centers in China. Despite the fact that AWS generates very little income, few major technology firms are expanding as swiftly as this business inside Amazon does. The organization aimed to invest $5 billion in new data centers throughout 2017—a 45% boost from 2016.
The company recorded earnings of $2.5 billion in the fourth quarter and $7.3 billion for the year, on revenue of $178 billion. Its operating margin was 25 percent in 2016, up from 20% in 2015 and 16% in 2014.
When it comes to profitability, Amazon is, without a doubt, unrivaled among contemporary businesses.
In 2018, Amazon raised the minimum wage for all U.S. employees to $15. At the same time, it hired 120,000 more seasonal workers across the country during the busiest shopping time of the year. Amazon also started giving employees one-time bonuses of up to $1,500.
Despite its strong market presence and profitability levels double those of Wal-Mart, the firm’s stock is valued at around 1.3 times sales and 8.3 multiple on forward earnings expectations.
Over the years, Amazon’s business model has evolved considerably. When Amazon first appeared in 1995, consumers had to place purchases online and pay an extra fee for a worker from Amazon to pack their items and send them via courier from its warehouses. Costs were low with this “warehouse on wheels” strategy, but Amazon did not make money on returns because it lacked the flexibility to provide same-day delivery. In February 2005, Amazon debuted Amazon Prime, which offered free two-day shipping for an annual fee of $79. As it added more services to Prime membership–like video streaming and music streaming–revenue increased rapidly.
According to Macquarie analyst Ben Schachter, the majority of Amazon’s revenue comes from services, including advertising and online payments (61%), with another 7% coming from AWS deliveries. This leaves just 32% generated by selling actual products and media content.
Amazon makes money based on what its customers purchase or do not (through third-party seller fees). This company also earns a lot of money from subscriptions, such as Prime memberships, Kindle e-books, music subscriptions, Amazon Web Services hosting services, and the like.
Amazon is rapidly growing its subscription businesses; it even recently introduced a new monthly subscription service called Amazon FreeTime Unlimited (for $2.99 per month). With parental controls, this provides access to thousands of books, apps, games, and videos for unlimited uses on Android devices.
Given that international markets make up a majority of its growth, it is no surprise that sales outside North America increased to 56% by 2016. That number was only at 20% eight years prior. Furthermore, e-commerce is slowly gaining more footing against brick-and-mortar retailers as the former gradually becomes more commonplace in households in China and other countries. According to Macquarie analyst Ben Schachter, the online retail penetration rate for urban Chinese households rose from 6% in 2010 to 25%.
Cloud computing services and advertising have created profit engines for Amazon. This proves that Amazon’s business model will continue to evolve, becoming less like a shop and more like Google or Facebook.
As Amazon has added new services to its Prime membership, its users have become increasingly loyal. People only subscribe to services that give them continuous value.
Amazon is continuing to grow; it has about 310 million square feet of total space leased or owned and an additional 870 Million available. This gives the company significant room for future physical expansion in international markets.
AWS has proved to be a successful profit engine for Amazon, allowing them to expand into other business ventures. In fact, by the end of 2016, AWS had earned nearly $15 billion in revenue- analysts predict that this number will only continue to grow, reaching over $20 billion by 2020.
Amazon believes its technology gives them a leg up on the competition; it can move quickly and assess what customers want before anyone else. When Amazon wants to break into a new area or product category, it takes its competitor’s time and resources to catch up. Also, from gross margins, you can see that Amazon excels at using its technological advantages to lower costs more than any other company.
Amazon’s expanding infrastructure and logistics sector make it more resilient in the event of a recession. During periods as terrible as the Great Recession, Amazon has shown to be capable of continuing development, which should reassure investors.
Similarly to Facebook or Google, Amazon does not require consumers who buy its goods to spend money on each transaction (just most of them). This allows the firm to profit from revenue streams such as advertising, which may further leverage its wide base of consumers and data about their behavior.
Apple stocks always perform well because the company is consistently able to surprise investors. This can be credited to strong cash flow and no debt or long-term obligations. Furthermore, Apple’s diverse product range–including iPhone, iPad, and iMac models, in addition to annual subscription services like Apple Music and iCloud–attracts consumers from many different walks of life.
Based on these four factors — cash flow, debt-free status, diversity in product type/revenue stream (services), and various revenue streams — you may be labeled an “investment expert.” Apple is more than these four aspects, which can be easily understood by examining the company’s product-based revenue model.
As an example, when Tim Cook stated during his Q2 2017 call,” Services revenue was $7.17 billion, up 18 percent from the previous year. This is the highest it has ever been.” He went on to express how pleased he is with the progress that has been made.
Apple’s services revenues have increased for seven consecutive years! In the third quarter, it beat expectations by nearly 1%. I am not surprised, given how much attention Apple pays to detail—even its packaging. Just look at these iPhone boxes that are sealed with stickers: no tape or glue is holding them together.
People not only want to purchase Apple products, but they also want to enjoy using them thoroughly. And this is an area where Apple really shines. As Cook pointed out in the Q3 2017 Call, “Customer satisfaction is also at an all-time high. Also, our services business has a very large and exciting pipeline of original content that we are working on.” Many people fail to see how crucial this is because they think it will be like a standard cable subscription where you pay the same monthly amount. However, Apple wants to jump on the SVOD (Subscription Video On Demand) bandwagon by releasing its own unique TV shows and movies.
Given that Apple already has a large customer base with products like the iPhone and iPad, it makes sense to keep them satisfied through its subscription services. These include music streaming, movie downloads/streaming, gaming platforms, news, cloud storage, and even mobile payments–all for only $24.99 per month. With multiple revenue streams available, Apple’s growth in this area will likely continue. In Q3 2017 Call, Cook said: “We are very happy with our Services businesses and how it is performing.”
Apple is one of the world’s leading smartphone producers. Device sales mainly drive Apple’s revenue. Still, in recent years, the company has concentrated on higher-margin subscription services, including streaming music and video, gaming, news, and cloud storage.
The iPad is Apple’s second most popular device, behind the iPhone. Like its smartphone counterpart, the iPad aided Apple in gaining greater handset market share internationally last year than Samsung (OTC: SSNLF). With “more than 13 million” sales over the holidays for both iPads and Macs also helped Apple dominate the tablet market.
It is also worth noting that, as a product category, tablets have received a lot of flak in recent years. OEMs have had a tough time competing with Apple’s iPad, which made up almost 60% of the tablet market in Q3 2017.
Although it has seen a 50% year-on-year revenue growth in the previous two quarters (Q2 and Q3 2017), combining quarterly sales into one number — $5.8 billion — would simplify evaluating its actual performance. This was worrying since there were reports that Apple would stop producing the iPad by 2021. However, this did not materialize, so 2021 revenue was $365.817 billion instead
For example, consider how current iPhone ASPs still exceed those from 2011, even without the iPhone 5, 6, and 7. Although it was designed to be a companion product, the iPad has still brought in $30 billion of Apple’s total revenue over the last four years.
Despite the fact that there has been some debate about whether or not iPad sales will soon reach a peak, Apple experienced a staggering 57% rise in iPad sales in 2020 owing to the coronavirus epidemic.
Even though the iPad might not have any YoY revenue growth, I still believe it will be relevant for a few more years. The main reason is that the iPad is still the best tablet on the market. It has a great design, a huge app store, and a relatively low price.
The other tablets on the market just do not compare to the iPad. The Amazon Fire is too limited, the Microsoft Surface is too expensive, and the Google Nexus is just not as good as the iPad.
Another incentive for me to believe it will endure is that, in terms of specifications, it compares favorably to the new iPad Pro and iPad Air – especially in terms of price. The current iPad Air 4is also still a great tablet, and it is only $550. So, while there might not be any YoY revenue growth for the iPad in the near future, I believe it will still be relevant for a few more years. It is still the best tablet on the market, with a lot going for it in terms of price and specifications.
Total Revenues Over Time
From Apple’s financial filings from Q1 2010 to Q3 2017, we can see that revenues have grown rapidly, more than 80% in just eight years-from $15 billion in FY 2009 to ~$215 billion by the end of FY 2017. While this number is pretty significant on its own, it would be even more jaw-dropping if its effective tax rate (ETR) was cut down from 30% to 20%.
If the company could do this, iPhone and Mac sales would not just increase YoY revenue growth rates and help EPS grow significantly faster. It currently does not do this because there have been several changes to the U.S. tax code over the past few years, including inversions allowing American companies to switch their headquarters and lower their ETRs in the process (e.g., Pfizer).
Apple did not have to decide whether or not to relocate its operations overseas because it had so much money on hand ($267 billion at the end of Q2 2017). This implies that most of its income went straight into cash flow rather than being taxed first, with just a portion going towards financing costs (i.e., principal + interest payments for debt held), research and development, store purchases (floor space), etc.
Netflix is an essential component of the FAANG group since it is the world’s leading streaming media business, providing hundreds of thousands of hours of internet entertainment to millions of clients in America, Canada, Latin America, Germany, France, Austria, and Switzerland.
Netflix was founded in 1997 by Reed Hastings and Marc Randolph when they created a website called Netflix. The company had only 20 workers when it was established. It first concentrated on DVD rentals, but it soon grew popular with consumers who started mail-order firms through online distribution services like eBay. As people learned more about Netflix, the number of its subscribers increased, prompting successful stock sales in 2002 that raised $8 million for the firm.
In 2007, Netflix began changing from a DVD-by-mail service to on-demand streaming. Then in 2012, it started investing in its original content for the streaming service. Nowadays, Netflix buys more film and television productions than any other company in the world; It has over 200 million global subscribers.
Netflix is always looking for exciting new content to add to its service that will both wow audiences and make shareholders happy. In 2018, they made a deal with the Obamas worth $50 million (at least) for the rights to produce shows under their company. Many other massive productions are set to be released soon too.
Netflix has a simple business model: instead of paying movie studios or production companies for films and television shows, it funds original content that can only be viewed on its internet media streaming service. This type of business model is popular with investors because they don’t need to depend on third-party producers to invest in projects before seeing revenue.
In October 2011, Reed Hastings announced that Netflix would expand to Canada and Latin America through their new subsidiary, Netflix Global. Since then, Netflix has grown rapidly, reaching almost 200 countries. They are currently working on dubbing and subtitling new productions so they can be released globally. In 2016 alone, 5 million new customers from around the world joined Netflix, bringing their total subscriber count up to 93 million.
Although many believe that movies are merely a minor element of entertainment giants’ revenue, it is critical for investors since the original content is considerably more expensive than other media types yet has a huge following. As a result, the firm must charge greater fees to its clients due to lower profit per subscription.
However, in 2017, Netflix stated that it would implement price hikes for all plans with an annual increase of $1 or $2, depending on the plan. Because consumer reaction is so important to the company’s success, this had a negative impact on its stock value and resulted in an investor sell-out.
However, because most of Netflix’s target audience is young adults who are very price-conscious when purchasing goods and services, this premium increase has had little effect on most consumers. As a result, while many investors dislike this corporate strategy shift, it may be an opportunity for them to acquire cheap equities while waiting for the next big hit.
Because the company must spend money on original productions before showing any revenue, it puts a lot of pressure on shareholders. There is no way to know how profitable their movies will be until they are released.
According to the most recent figures, film and television productions take a long time to finish, which is why Netflix is required by law to show its financial information according to the fiscal year (ending on June 30th). Consequently, it becomes more complicated for investors who want to understand what sets this business apart from others. Despite being beneficial to earnings, Netflix’s strategy shift towards focusing on original content may not play out as planned due to an extensive cost structure.
In 2016, total streaming hours increased by 60% over the previous year, with the bulk of it due to an increase in new material accessible on the platform. The firm also has no intentions of slowing down as it planned to invest $6 billion on original content in 2018. Netflix must balance growing its user base while spending significant money on film and entertainment assets. This figure does not include any expenditures on outside sources’ creative works.
This may significantly impact their bottom line, as they are committed to hefty expenditures associated with maintaining original content and obtaining conventional media. Because there is no definitive formula for success, investors are unable to assess if their business decisions were successful or not based on the company model alone.
Netflix should be wary of films that are too expensive but fail to attract enough people. Investing more than $100 million in a single movie would most certainly irritate investors, and they may boycott the firm. However, it is worth noting that this one film probably costs much more than $100 million when you include marketing and other expenditures.
Alphabet / Google
Google is a top stock to invest in because it holds the world’s largest global ad spending market and owns the planet’s most popular mobile operating system and search engine.
The company has benefited from the transition from desktop computers to mobile devices. Consumers use their smartphones to access Alphabet’s services more than any other device. There will be 5 billion people, or 84% of Earth’s population, with a smartphone in 2021.
According to a statistic released by sistrix.com, Google receives approximately 64% of worldwide Android-powered smartphone searches each month compared to 35% of all computer searches on all PCs connected to Google servers. In 2017, Google generated $95.58 billion in income at an expense per click of $23 for advertising on its websites and services.
Alphabet/Google is not the only company that has experienced this trend; it is an industry-wide event as people replaced their PCs with smartphones and other handheld devices. The total number of U.S. digital display ad impressions increased 23% yearly, while Google’s percentage rose 11%.
Alphabet is not only a major player in search ads on mobile devices but also in social media. 187 million daily active users log onto YouTube every month- which equals nearly 1 billion hours per day. This amount is significantly larger than Facebook’s monthly active users, which was 1.13 billion in Q4 2017.
According to a Pew Research survey, before it discontinued its consumer-facing brand, Google+ was the second most popular social media network among American adults, behind only Facebook. It is not now a major player in social media. Still, YouTube’s hundreds of wildly successful content providers create an environment that keeps consumers coming back for more, which advertisers can take advantage of.
As the world’s largest video-sharing service and owner of one of the best search engines, Google is in a prime position to take advantage of the mobile advertising market. This market is estimated to grow at a compound annual growth rate of 14% until 2019 when it reaches nearly $200 billion annually. Of this total amount, two-thirds will come from internet ad spending. With such a large share of the market (40%), Google stands to make significant profits from mobile advertising in the coming years. As of 2021, there will be 5 billion internet users – almost three-fourths of the world’s population. Everything will be on smartphones, most of which will be accessed through Google properties.
Google could use its expansive user base to generate targeted ads, for example, by utilizing data from users’ search history, YouTube viewership, or location when combined with information from Google Maps, Waze, and other Alphabet-owned web services like Calico (health sciences research). Google’s new data acquisition and monitoring capabilities will allow it to better target ads to consumers based on their search histories, interests, and activities across everything they own, including hardware products like Google Home voice-activated speakers, Pixel smartphones, and Nest smart thermostats.
Alphabet’s marginal profit rate could be much higher if it were not investing in developing businesses such as Waymo, Verily, and Sidewalk Labs that have yet to generate revenue. The company’s cost of revenue has increased from less than 11% of sales in 2012 to over 31% in 2017, while operating expenses have jumped even faster, from 7.9% of sales to 24%. Alphabet does not break out operating income for each business segment, but the numbers suggest its core business could earn record levels of profits soon.
Research and development costs as well as marketing costs to advertise Google search, Android, Chromecast, Chromebooks, YouTube, Waze, Adsense (its web ad placement platform), Maps, and other products and services to new customers every three months are among the major cost items for the Google parent company. Alphabet also includes the depreciation charges incurred in purchasing computer equipment that will be used for some time until it becomes obsolete or fails due to everyday use and tear.
Most (approximately 80%) of these assets were bought years ago and have a long period of usefulness before they must be replaced. When viewed through the lens of constant R&D and S&M spending, Alphabet’s rising depreciation line items help explain how it is selling and general. Administrative costs have quadrupled since 2012 despite the growth in its top line.
We can see how Alphabet’s free cash flows increased at a double-digit rate every year from 2013 to 2017, except in 2015, when earnings were depressed by major capital expenditures related to data center construction. The firm was very aggressive about constructing new buildings that same year, most likely anticipating the effect of mobile internet usage on its revenue and profits growing rapidly. The right decision was made as Google’s total traffic acquisition cost, an essential metric for measuring success with search engines, increased more than 50%, from $4 billion in 2014 to $6.3 billion in 2015. Even though there was a decrease in total sales, operating income still rose by a small amount.
The acquisition of smart home firm Nest and the introduction of Google Fiber, which provides internet service at speeds faster than traditional cable connections, account for the bulk of Alphabet’s capital expenditures in 2015. As Alphabet’s share of broadband traffic has increased over time – through organic growth and acquisitions like YouTube, DoubleClick, and Waze – it has needed more data centers worldwide to support its rapidly growing number of users. These users access content on mobile devices for free or at low cost, as well as pay-per-click advertising customers willing to bid higher rates for commercial real estate on Alphabet’s ad networks.
Two major events in 2015 contributed to Alphabet’s high capital expenditure rates: the launch of their fiber internet service to residential homes and the acquisition of smart-device maker Nest. These two significant investments were overshadowed by data center projects that were just as groundbreaking. Google’s new modular data center technology, which speeds up cloud computing services, helped boost capital expenditures in 2016 and 2017. The company is also investing heavily in machine learning applied sciences that will allow it to integrate artificial intelligence into more and more products and services over time.
As we can see over the past several years, Alphabet has been ready to give up short-term earnings to invest in future technologies with a greater long-term potential return on investment. Alphabet is now a global leader in artificial intelligence (AI) technologies that can analyze and interpret data faster than people can blink. It has been shown to be highly beneficial to its internet search, advertising, and YouTube platform in recent years. The company is working on launching an internet satellite network that would make it easier and cheaper for businesses and consumers across the globe to connect to the internet.
It is expected that, as self-driving cars become more prevalent, Alphabet will attempt to expand into other large markets such as healthcare services, transportation, or manufacturing – all industries in which there is a high demand for round-the-clock goods transport. Google has ambitions to expand into other huge sectors, such as healthcare and transportation, where it may apply monetization platforms like YouTube and DoubleClick.
In an attempt to better comprehend how customers use augmented reality (AR) user interfaces more efficiently than ever before, Google recently acquired a tiny San Francisco-based technology firm called Eyefluence. Facebook’s Oculus Rift may be virtual reality’s current social media giant. However, Alphabet believes augmented reality will present a much bigger business opportunity over the next decade. This is especially true when you consider that most people do not need any new hardware for AR experiences – many existing mobile devices can provide impressive AR content using software instead of headsets.
Google perceives itself as the preeminent player in web search, an essential tool for users in finding, accessing, and sharing information online. However, the firm is also attempting to branch out into new markets to find solutions to enhance productivity or efficiently use its technologies. Alphabet’s “other bets” category comprises companies that are not necessarily connected to advertising or the internet; they influence the overall performance of the firm since many of these investments are still in early stages and not yet profitable, but they offer a significantly higher potential return near-term profits justified the risk of short-term gains for long-term.
This has been a sought-after approach by investors who see Alphabet as a company with long-term value, in contrast to firms like Facebook that were created only to make an annual profit. So far this year, Alphabet has given shareholders a total return of more than 55%, while Facebook lags at 12%.
What Are the Advantages of Investing in FAANG Stocks?
Over the past five years, FAANG stocks (Facebook, Apple, Amazon, Netflix, and Google) have increased in popularity. The main reason for this is their growth rates; they outpaced the rest of the stock market by a long shot. In 2013 these five companies only made up 0.3% of 478 public companies with values over $10 billion, but that number had risen to 10% by 2015, according to CB Insights. Also, 65% of all venture capital funding was split among these few companies and 6% of worldwide equity deals. But it gets better; six out of every ten top tech deals were between different members of this group investing in each other.
Many investment firms are pleased about the recent upswing of FAANG stocks for several reasons, most notably because it simplifies investing and consequently boosts profits. When diversifying investments among various companies, these firms can still maintain profitability even if one industry falls through or completely crashes. With notable investor figures such as Steve Cohen’s Point72 Asset Management and George Soros’ investment firm getting involved in the market, investing is proving to be more lucrative than ever before–something worth considering next time you read an article on FAANG stocks and how they could make you rich.
In recent years, the FAANG stocks have also revolutionized how venture capitalists operate; they no longer evaluate startups independently as they did in 2010. This is because investment firms recognize that investing in one firm alone is not as valuable as collaborating with another FAANG stock.
Learn more about how to get rich by investing in the exact investment vehicle by reading our website today, where you can discover how to make money with these equities. Our site also contains information on stock investing and how popular FAANG stocks like Facebook are transforming the way we live now. They are continuing the legacy of those first Internet leaders who revolutionized our lives.
Successful investing requires staying current with trends, being informed about the investment market, and being mindful of the type of investing most advantageous for your financial situation. A terrific way to achieve this goal is by purchasing stocks everyone is talking about, like FAANG stocks.
Although high-risk stocks can have higher rewards, they are not without their dangers. As a general rule of thumb, we recommend that no more than 15% of your total investment portfolio be in volatile companies to minimize risk. If you are new to investing, take some time to study up on the market before you start placing orders–just as any seasoned investor would do with investments that could potentially go bad.
Before investing your money, you should know standard investing terms and how they work. Doing your research ahead of time can avoid potential scams and know precisely what you are getting into. Here are some keywords to remember: financial advisor, investment due diligence, portfolio diversification, and asset allocation.
Investing With Money You Have
Before putting your money into stocks, research to minimize risk and maximize gain. Tips from Warren Buffett and other investing tips can help get you started on the right foot. Making money work for you is one of the smartest things you can do, but do not blindly invest in something you do not fully understand just because someone says it is a good idea.
Our website explains how to invest in the shares of investment firms and how popular FAANG stocks like Facebook are the new Internet companies, preserving the legacy of those first internet leaders who fundamentally altered how we live.
While investing in stocks can undoubtedly change your life, it is not something that everyone is good at. Make sure you research any companies you are thinking of investing in and always get professional advice before putting too much money into any one company or industry. Remember that investing can make you rich, but it can also lose all your money if you do not know what you are doing – as Warren Buffett says, the investment will bring out the gambling instincts in us all (unless you are trading stocks).
If you are interested in learning more about investing and how to get started, be sure to check our website frequently. We update our content daily, so you will always have the most up-to-date information. Keep in mind that investing comes with inherent risk; there are two ways to approach it. One is by investing in companies that hold potential value; the other is by gambling on a company without doing proper research beforehand (which often leads to losses). We suggest you invest no more than 15% of your total investment in one firm in spreading out your risk. Also, make sure you are investing with money you do not need for the next five years since investing may take time to produce any profits, so we recommend beginning small and growing as time goes on.
If you are a beginner, investing in stocks is pointless since you have no knowledge of the subject and need to conduct research. If investing in the stock market sounds like an overwhelming prospect, there are alternative ways to invest your money.
REITs are another alternative approach to investing. This market is known as the real estate investment trust (REIT). Purchasing shares in apartment buildings, schools, commercial properties, or even shopping malls that pay rent and distribute earnings back to investors is an excellent way to invest in them. For additional information about investing in REITs, visit our website regularly.
A mutual fund is another alternative that allows you to pool all your money with a professional. Mutual funds allow you to invest in various stocks, bonds, and other assets from multiple sectors, so consider mutual funds.
Although investing can provide financial stability, it is important to remember that you need to do your research before sinking your money into a company. Investing without looking into the organization’s background is like walking blindly into an unknown and dangerous situation – you have no idea what could happen next. That is why it is always better to take some time to perform thorough research instead of leaping in headfirst without any knowledge.
Before investing a significant amount of money, find out what investing entails first because investing has a danger with no guaranteed profits; only potential gains are available. Truly investing has the potential to change your life, but there are many different ways to invest.
Not everyone has access to the knowledge or time needed to get the most out of investing in the stock market. Therefore, for many people, mutual funds may be a more sensible option as it does not require individuals to put in the extra effort needed for success.
However, keep in mind that investing should never take precedence over learning about how to invest since anything might go wrong with your investments, either putting you into the position of investing large sums of cash into terrible deals or not investing at all. Investing is not a quick fix if you want financial freedom, but it can be just as important and rewarding as saving. Investing takes time, so patience is vital. Without patience, you could lose your investment very quickly. Investment is not an instant gratification method but a long-term commitment that requires both work and risks – sometimes, this type of thing is impossible for people who always want results instantly in life.
Taking risks will not help your money grow since investing in areas where future profits may be found. Find an investing method that best meets your needs before putting any money into stocks with only one goal: growing your portfolio over time. Investing is a long-term strategy, so everyone should consider using it to help their money grow over time. Investing can be dangerous; therefore, research and understand what you are involved in.
Putting your focus on investing rather than spending may appear to be a tremendous job, but focusing on investment now can help you attain financial freedom in the future while allowing for risk-taking without jeopardizing everything you have worked hard for. Investing should not be a gamble since there are no certainties you will win when gambling; however, it necessitates planning and discipline to succeed as wild speculation might lead one astray, causing them financial ruin.
When you invest, you want to put your money into reliable companies with a history of making a profit. This way, you invest in already proven entities instead of taking chances on start-ups. Start-up investments tend to be high-risk/high-reward situations that are not ideal for everyone, usually carrying greater risks but also offering the potential for more significant rewards.
However, if you wish to invest in startups, keep in mind that you must only use funds you are willing to lose. This means do not put more money than you can afford to lose into your savings or a 401(k), for example.
Investing money is not gambling, so always be strategic and monitor your investments. Although being careless with one investment can cause you to lose a lot of money, as long as you keep track of all activities related to investing, you will most likely succeed. Track your investing activity carefully by maintaining a journal of all investment transactions. This will help you avoid paying taxes on income from capital gains or other investments. Be vigilant when investing, as failing to keep accurate records could lead to costly tax bills.
Wisely keeping tabs on your investment records can accelerate the growth of said investments–but only if done correctly. To get proper Intel, take time to document all related investing activity pertaining to your portfolio’s ebb and flow. Doing so helps ensure annual tax-time accuracy when prepared statements are run against your finances.
Never invest money that you cannot afford to lose. This is true no matter what others say or try to sell you. Always remember that investing carries risk, and it is important to be aware of this before diving in headfirst. Investing in something you do not understand thoroughly might ruin your financial future. Therefore, investing money you cannot afford to lose is never recommended since it might cost all of your retirement savings, which would be the last thing most people want to hear. Many people forget they have IRAs when thinking about investing in stocks, but they still exist and should be considered. However, one should invest in their 401K first because there are limits on how much tax you can pay with them. This is especially important if you are self-employed; investing in an IRA blind without the proper knowledge could cost everything.
Investing is not investing if it does not pay off, and wise investing sometimes entails putting money into assets that do not pay off right away but timing the market is nearly impossible to do, so think long-term for the greatest chances of success.
When investing, double-check that all of your information is correct. Even a decimal place error might cost someone thousands of dollars, affecting not just their portfolio growth but also their self-esteem and producing hatred against the one who made the error. This may sound harsh, but mistakes are a natural part of life, just as they are in investing.
Never invest in anything you do not fully comprehend, only in things you know about, and only to the extent you can afford to lose. Investing is investing, but when investing becomes gambling, it could happen quickly. Keep track of all activity by keeping a journal anytime you invest, so the IRS does not come calling for your assets later on because even one blunder while investing may result in a massive tax burden later down the road.
Keep All the Documents Related to Your Investment
When making investment decisions—like buying stock or selling your entire portfolio—keeping track of documents related to your activity is essential. This includes keeping a journal. Spreadsheets may seem tedious, but they will come in handy during tax season when you need to calculate any capital gains created from investing accurately. Plus, if everything is neat and tidy, there is less chance for mistakes that could get you into hot water with the IRS.
Track all investing activity as it relates to your portfolio so that you can see what kind of return was earned on an annual basis, as well as whether or not investments were made after personal income, for example.
Having updated financial statements for all your investment accounts is crucial, so be sure to update them regularly. If you have any suggestions on where others can find such information in real-time, please leave a comment below. Remember: investing should never cause undue stress. One catastrophic investing mistake could ruin you financially ten years down the road, so always be sure to buy stocks after a market crash when they cost less. Many people invest without knowing what they are doing, but it will take some effort on your part to learn where to invest in FAANG stocks specifically.
Investing for retirement or building wealth should not mean forgetting other important goals, like paying off your home. If you do not have enough money left over after saving for retirement, you will not be able to make much progress toward paying off your mortgage. So keep investing while you can. Investing is not complicated; just know when and where to invest and if it is right for you. Investing is nothing more than gambling without the proper knowledge of how an investment works.
When saving for retirement, consider investing in a 401K or IRA. These investments have tax advantages, which means that even though the return may be small initially, it will grow quickly after retirement. Investing automatically by depositing money into a 401(k) or IRA every month makes investing simpler and less stressful. Personal investing can be taxed heavily, so invest in long-term growth by automatically depositing money into a 401(k) or an IRA to enjoy monthly returns without stress. When investing, aim to invest in stocks with insider buying or selling activity, as this could mean investing in stocks that cost more than initially thought. Remember always to invest wisely to avoid any risks.
Remember to factor in other goals, like paying off your home when saving for retirement. If you do not have enough leftovers after investing, you will not be able to make much headway on other important objectives, such as becoming mortgage-free. Keep investing—it does not take much effort, but success depends on knowing how to invest wisely. With the ever-changing landscape of FAANG stocks, there is always something new investors need to learn.
Investing in FAANG Stocks
Always make sure to invest in FAANG stocks with the highest upside potential since if you do not perform well, your company may go bankrupt down the road. It is critical to understand which FAANG stocks will do best over time and why.
How Did FAANG Get Its Name?
CNBC reporter Jim Cramer initially coined FAANG in 2013 as an acronym for Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Alphabet’s Google(GOOGL). The term quickly became popular, with the general public using “FAANG stocks” to refer to these five leading technology companies.
Who Are the Owners of FAANG Stocks
FAANG stocks appeal to a wide range of investors, including retail traders and professional money managers such as hedge funds and mutual funds. Because they are regarded as high-risk, high-reward investments that may produce significant returns over time, many people have heard about how much money an investor could have made if they bought Amazon’s initial shares in 1997 for $18 each. Apple’s popularity is rising because analysts are very optimistic about the company, and the iPhone 8 is selling very well.
Berkshire Hathaway, Soros Fund Management, and Renaissance Technologies are just a few organizations investing in FAANG stocks. Many more prominent investors own more than one FAANG stock in their portfolios.
Why Are FAANG Stocks Popular?
FAANG stocks attract investors because they often progress significantly with their prices. However, they have good market capitalizations (the number of shares multiplied by the price per share).
The total value of all shares on the stock market is widely accepted as a popular, if somewhat basic, the definition of market capitalization. The greater a firm’s market capitalization, the more investment it will require to move its price significantly. For example, Apple’s current $840 billion mark in August 2017 represented approximately 0.3% of global equity markets (roughly $78 trillion). These large companies have increased over recent years due to positive investor sentiment driven by solid growth and momentum; they are now trading at prices well above their book values.
FAANG stocks seem to evade logic- their high valuations and assets garner investor attention, but the short term has been full of volatility for these companies. For example, even though it trades at more than two times its book value, Apple has had three price hikes of over 20% in a single year—in January 2014, September 2015, and March 2016.7 This type of volatility can make some traders hesitant about investing in FAANG stocks because, despite their high valuations, they may still drop quickly without any notice or justification. Furthermore, as popular as they are among many substantial institutional investors and individual retail traders, there is also significant skepticism surrounding them.
What Is the Difference Between Trading Risk and Intraday Volatility When It Comes to FAANG Stocks?
On an individual basis, FAANG stocks are often considered at higher risk than the average stock in the S&P 500 because their prices can go up or down considerably in value over short periods. For example, Apple’s stock price increased 72% between March 2017 and December 2017. In contrast, the overall market (as measured by the S&P 500 Index) barely moved during this period, increasing only 2%.
If you had invested $100 into Facebook in January 2014, when its stock was trading at approximately $32 per share, your investment would have grown to roughly $220 over the next three years. However, if you decided to sell one day after news broke about Cambridge Analytica’s unauthorized use of third-party data, you would only have gotten about $155 for the same investment. These facts show that short-term investors should not focus exclusively on FAANG stocks when considering their trading strategies.
FAANG Stocks vs. Other Stocks
The FANG stocks are frequently considered riskier than traditional assets such as bonds and blue chip equities. This is because, even if interest rates are low, bonds will continue to pay off at least the original amount of the bond if held to maturity. In contrast, a company’s stock price depends on factors that may or may not influence its worth in the future (such as how well it performs as a business). Investors looking for more control over their portfolio’s performance will look for other firms with lower risk profiles.
For example, if you had put $100 into the S&P 500 Index on January 2, 2014, for 1,848 (the closing value on this date) and kept it for more than three years without making any additional investments or sales, your investment would have increased to roughly $244. Even though “blue chip” companies like these will not generate as great a swing in value as FAANG stocks, they are much more reliable in terms of return—particularly when interest rates are low.
This strategy outlines how to invest in FAANG stocks despite their impressive growth and momentum. What is key to this plan is comprehending investor sentiment; mainly, how it responds To news releases and other similar circumstances will affect the performance of each stock within this group.
FAANG Stocks and How They Relate to Investor Sentiment
In our interconnected world, where news spreads quickly across social media platforms, understanding investor sentiment can be crucial to spotting trends that affect the performance of high-profile companies like FAANG.
Following a good or bad corporate announcement, look for any significant changes in analyst ratings; another aspect to consider is Google search traffic around critical words related to the firm (as it may indicate how much interest the general public has in its company). For example, suppose we see a drop in web pages and articles discussing Facebook’s privacy policies. In that case, this could suggest that users are now more suspicious about their data being shared by Facebook without their consent. This would then have a knock-on effect of reducing its ability to make money from the information it has acquired through user data, harming its shareholder value and damaging investor morale.
The Relationship Between FAANG Stocks and Economic Trends
The investment environment is constantly changing, depending on where we are in an economic cycle. Specific sectors tend to outperform others during a recession or expansion. For example, while FAANG firms frequently rely on advertising income to drive sales and growth, a growing economy might allow more households to have free spending cash available for higher-priced purchases such as iPhones and Netflix subscriptions (although they may be less inclined to invest this money directly into FAANG equities). When consumer spending rises, these businesses will benefit from substantial economic expansion.
When the economy enters a recession and people are less likely to spend money on items such as FAANG stocks, this can decrease revenue for big businesses like this group. The influence of an oncoming recession may be seen by examining market volatility indexes such as the Chicago Board Options Exchange Market Volatility Index (VIX) to see whether investors are concerned about potential hazards associated with specific industries or sectors. Due to the increased risk, it may be best to limit trading activity or avoid investing altogether during an economic downturn, as stock price declines are likely to exceed gains made during periods of expansion.
You will be better equipped to identify how FAANG stocks perform in various economic situations if you understand how investor sentiment may impact their success. Some of the most recent stock fluctuations by FAANG firms, such as Facebook, can also be linked to investors’ alarm over stricter data privacy and cybersecurity regulations and youngsters’ internet addiction concerns. If you are worried about how new regulations might eat into profits, it may be time to look beyond the big players like FAANG stocks and focus on smaller tech startups or “deep value” stocks.
FAANG Stocks and Sentiment Indicators
You may use online sentiment tools like Google Trends to see whether a company is generating more or less buzz. You can also analyze analyst rating changes using Thomson Reuters StarMine. Furthermore, investing apps such as Robinhood is free to use and allow users to learn about sentiment based on the number of people trading or chatting about a stock.
After you have gathered this info for all five FAANG stocks, benchmark their performances against each other as well as alternative investments and indexes such as the DJIA, Dow Jones U.S. Technology Index, or S&P 500® index to understand how they have performed over the past months and years. Although some argue that specific tools work better than others when analyzing FAANG stocks, important metrics should not be overlooked just because they seem less attractive.
FAANG Stocks: How They Differ from One Another and Their Competitors
Although FAANG stocks share many commonalities, it is crucial to evaluate each company separately because their businesses and financial goals vary. Take Amazon and Facebook, for instance:
Facebook is now attempting to move away from reliance on digital advertising revenue by developing new technologies such as Watch, which directly compete with streaming services provided by companies like Netflix (NFLX) and Amazon (AMZN), according to the Wall Street Journal. Investors should keep an eye on Facebook’s overall earnings potential as it makes this transition.
Amazon recently signed a purchase agreement with the U.K.’s Whole Foods Market, which is expected to add more than $1 billion in yearly income for the e-commerce giant.
Microsoft’s (MSFT) own digital assistant, Cortana, will compete with Apple’s (AAPL) offering of Siri. Microsoft is also working on a new Azure product, expected to generate $20 billion or more in revenue annually by 2022.
Apple’s success with the iPhone has helped it continue to improve earnings over time, surpassing Wall Street expectations quarter after quarter. As consumers face rising smartphone prices due to growing tariffs on goods manufactured outside of the United States and newly-imposed limitations on how technology firms like Apple may collect data, its future results could suffer.
In 2015, the Apple Watch was a major flop; however, if management decides to introduce new features that set it apart from other smartwatches on the market today, there may be a resurgence in sales.
Alphabet (GOOGL) is facing issues with growth in the short term. Their new Pixel smartphones have not done as well sales-wise as Google had hoped, which caused a decrease in profit for the first quarter of 2018. Another development to note is that Alphabet has announced it will end its business partnership with the Chinese search engine Baidu (BIDU). This could pose more challenges for GOOGL and other American tech companies that want to do business internationally.
Amazon, Apple, Facebook, Netflix, and Alphabet are often compared to one another since they all hold a diverse portfolio of valuable assets such as trademarks, domain names, and intellectual property. They have also helped to develop cutting-edge technologies like artificial intelligence and virtual reality, much like other large internet companies.
While these companies are frequently compared, investors should note that they do not always move in tandem. While Facebook surged throughout June 2018, Amazon, Alphabet, Netflix, and Microsoft were all down more than 10% over the same period. This indicates the importance of considering various factors when analyzing a company’s fundamentals.
The FANG stocks may progress quickly, but their growth does not guarantee long-term success or market leadership. When comparing these firms, investors must look at actual numbers on a company-by-company basis. Revenue, earnings expectations, and trends in development are all critical factors; investors should also consider the firm’s financial health by assuming debt and price-to-earnings ratios.
With stocks like FAANG, we have repeatedly seen how crucial it is to investigate security before investing in it.
Is It a Good Idea to Invest in FAANG Companies?
These stocks, which include companies like Google (GOOG), Amazon (AMZN), Netflix (NFLX), and Facebook (FB), are considered good investments. They are among the most successful businesses in the United States and have a long track record of outperforming the S&P 500 index.
The Sustained Success of FAANG Stocks
Some of the largest tech companies in America, such as Facebook, Apple, Amazon, Netflix, and Google, are rapidly changing industries with innovative new technologies. These so-called “FAANG” stocks have been surging in value recently and show no signs of slowing down.
* With 1.4 billion monthly active users (MAU), Facebook is the world’s largest social networking site and one of the most visited websites in the world. Its URL has a market value of hundreds of millions of dollars, making it one of the planet’s most valuable domain names.
* Apple is the largest publicly traded company in market value, with a current worth of approximately $1 trillion and 1 billion MAU. The iPhone franchise contributes most to this total, but other lucrative businesses include the iPad, Macbook, Watch, and accessory lines.
* Amazon has established a dominant position in online commerce and cloud computing. It is one of the world’s largest internet retailers, with more than 200 million active customers worldwide. It was profitable for 20 years before turning a profit in 2017 due to reinvestment into growth areas such as Amazon Web Services (AWS), which hosts millions of websites globally. AWS gives its users powerful tools to be more productive.
* With 125 million subscribers, Netflix is the world’s biggest streaming media service, and it also creates its shows. Its operating margins are incredibly high as a subscription business (about 40%).
* Though Google is one of the world’s most prominent companies, it has not performed as well investment-wise in recent years compared to other FAANG stocks. This may be because, since Alphabet was created by spinning off Google in 2015 as a separate legal entity, potential investors see it as less dependable. However, this does not change the fact that its search engine is used globally; Android mobile OS powers about 85% of smartphones worldwide; many large U.S businesses utilize its enterprise software solutions, and YouTube continues to be the #1 website for online video content internationally.
The FANG stocks have always been at the forefront of developing and implementing web advertising as a business strategy (Facebook, Alphabet/Google, Netflix) while also accelerating the move to mobile-first computing (Apple).
Other tech giants include Facebook, Apple, Amazon, Netflix, Google, and Microsoft. For decades, Microsoft has been one of America’s most innovative innovators. Jeff Bezos is one of the world’s wealthiest people, with a net worth approaching $150 billion; his company is in an inventive position with Alexa and AWS. Spiegel was formerly Facebook’s chief executive officer of Instagram; Snap sold its hardware business to Taiwanese computer manufacturer Foxconn. It returned to private hands at a value near $20 billion in Spring 2018.
Adopting cloud solutions and digital services has given American companies a significant advantage over their foreign counterparts, who are still playing catch-up.
Executive compensation for FANG stocks has increased in tandem with their valuations. On an hourly basis, Mark Zuckerberg became the second-highest paid executive in the United States in 2018. Reed Hastings earned $24 million a month as Netflix CEO. Jeff Bezos was 2017’s highest-paid corporate leader (excluding activist investors), reaching $1.6 billion in yearly salary and other compensation despite being responsible for just 3% of US corporate profits that year – though he also owns about 17% of Amazon’s stock.
We can see wealth inequality in the US thanks to FAANG stocks’ recent market domination, as these companies make up a more significant portion of corporate profits than their job creation warrants. For example, Apple is now valued more highly than the following 676 US publicly traded companies combined. Also, we are seeing some extreme historical valuations with FAANGs right now — Facebook’s P/E ratio is 67x.
There are also worries about each firm’s status as an advertising monopoly. Facebook and Alphabet dominate social media and internet search; Google controls mobile searches on Android devices through its Search app; both Google and Facebook have significant power in online news media, and all four have the most considerable capacity to gather clickstream data for behavioral targeting.
The following are some of the most frequently raised issues: Google’s dominance in online advertising-supported content might be detrimental to free speech; Apple has no viable business model outside of its smartphone product lines; Snap is competing against other social media businesses, as well as Amazon, which may pose a problem.
Several powerful growth stocks have driven the US stock market’s recent rise, the most notable being Facebook and Amazon. On the other hand, the FANG stocks have contributed to much of the post-2013 stock market gains in the United States. However, when it comes to their growth metrics, things aren’t quite as simple. For example, Google’s revenue grew by 20% in 2018, while Facebook’s active user base fell in March 2019 owing to aggressive accounting methods.
FAANG stocks can be somewhat unpredictable, and their high stock prices make them vulnerable to sudden changes. For instance: Apple’s shares have dropped 24% from their record highs in October 2018; Amazon has lost two-thirds of value since late last year; Snap was blamed for fraud after an unclear Q1 2019 earnings call upset investors; Netflix revealed a 710,000 user loss for the three months ending June 30th, 2019.
The FAANG technology firms have helped promote innovation and employment worldwide (and thus far largely escaped anti-trust scrutiny), yet imposing limits on their power through legislation has its downsides.
For example, any regulatory changes that result in lower profits for these businesses would almost certainly lead to decreased R&D spending, layoffs, and hiring freezes; similar policies could cause public distrust and boycotts, and the government might put its interests at risk by restricting free data movement through privacy rules meant to safeguard consumer rights.
Despite the flaws listed above, we think certain adjustments benefit FAANG leadership.
(1) Big technology companies have a long runway for future innovation owing to their massive R&D spending (e.g., Alphabet’s 2018 R&D budget was $22 billion).
(2) These stocks appeal to long-term investors since they have high price tags and growth prospects.
To sum up: FAANG stocks have the potential to generate strong growth due to their long runway for future innovation. However, this performance could be limited by political pushback in the short term. Given these stocks’ high valuations and volatility, we believe it would be wise for investors to allocate more conservatively towards big tech companies than large-cap securities in other sectors.
About the Author
True Tamplin, BSc, CEPF®
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.