3 FAANG Stocks Rising in 2019

So much gets made of the FAANG stocks -- Facebook, Amazon, Apple, Netflix, and Alphabet (Google) -- and rightly so. The tech giants have a combined market cap of $3.1 trillion, and their collective bear market last year – during which the group lost over 20% of its market value – was a major driver of the general market swoon.

At the same time, the FAANGs have continued to generate profits, and all five have shown an upswing since the beginning of the year, partially recouping their recent losses. Their recent gains have attracted notice from some of Wall Street’s top-rated market watchers, the five-star analysts you can find in TipRanks’ Top 25.

Three of the FAANGS have shown particularly good performance so far in 2019. Alphabet, Apple, and Facebook are all up in the markets, but for different reasons. Let’s unpack the data, and find out what the bulls have to say about each of them.

Alphabet, Inc. (GOOGLResearch Report)

Each FAANG is unique; Alphabet is built on Google’s search engine and YouTube’s online video. The service draws the customers, and ad space brings in the revenues. It has proven to be the profit engine of internet business models, and underlies Alphabet’s strong position in the equity markets: the stock is priced high, at $1,164 per share, Google holds an astounding 92% off all search engine traffic, and YouTube is the web’s second most popular social media site by monthly active users.

That’s not to say that Alphabet hasn’t had its problems. The nature of the company’s core Google business makes it vulnerable to data privacy concerns. The EU fined the company $5 billion in an antitrust action. And Alphabet has had to answer to employee complaints about company handling of discrimination, sexual harassment, and pay equality matters.

The analysts have come down firmly on the bull side for GOOGL. Five-star analyst Ivan Feinseth (Track Record & Ratings), from Tigress Financial, reiterated his Strong Buy outlook on Alphabet, noting, “…accelerating growth in mobile search and YouTube engagement continues to drive gains in revenue, cash flow, and economic profit.” He also pointed out that the Google search engine “continues to expand its position as the dominant desktop and mobile search engine.”

Top-ranked Needham analyst Laura Martin (Track Record & Ratings) conducted an in-depth review of Alphabet, concluding that the company is trading at a discount compared to its corporate worth. Some key data from her analysis, pointing out sources of value in the company, include: “…GOOGL’s search engine represents about 43% of GOOGL’s value; YouTube’s ad plus subs businesses together are about 19% of GOOGL’s value; Cloud represents about 13% of GOOGL’s value; and non-income statement assets (tax, real estate, brand value, etc.) add about $425 of value per GOOGL share.”

Overall, Martin’s analysis clearly quantifies the sources of GOOGL’s value in the markets. In line with her bullish thesis, she sets a $1,350 price target for the stock, implying an upside of 15%.

Martin’s conclusion is in line with the general analyst agreement on GOOGL. The stock has 27 ‘buy’ ratings and 1 ‘hold,’ giving a ‘Strong Buy’ consensus. The average price target, $1,346, gives a 15% upside potential from the share price of $1,164.

Apple, Inc. (AAPLResearch Report)

Apple had a roller coaster year in 2018. In late summer, the company broke above $1 trillion in total market cap, making it the first publicly traded company to reach that milestone. The stock climbed above $225 per share in September, and reached an all-time high of $230 in October, before beginning a Q4 slide that bottomed out at $146 on Christmas Eve. Immediately after the New Year, CEO Tim Cook talked down the Q4 guidance, pushing the stock to a low of $141. Since then, AAPL has gained 23%.

Shares were pushed down by a combination of factors, including slowing iPhone sales, US-China trade tensions, and slower spending among Chinese consumers. A company decision to stop reporting total iPhone units sold did not improve the mood of investors.

At the same time, Apple has undeniable strengths. The company is sitting on a cash hoard of over $280 billion, the iPad and iMac product lines remain profitable, and the services segment (Apple Music, the App Store, etc.) is showing strong profit growth. And as a less visible advantage, Apple’s more traditional position selling tangible products has generally kept it out of the regulatory crosshairs that have plagued Alphabet and Facebook.

Even so, Apple’s heavy losses and downgraded quarterly expectations have left it with an even bull/bear split from the analysts. The most recent reviews, however, are tending toward the bullish side.

Wedbush’s Daniel Ives (Track Record & Ratings) looks at the recent developments on the China trade front, where US and Chinese negotiating teams are talking up their progress toward an agreement and the two Presidents are openly discussing a personal meeting at the end of this month, and sees potential for a boost to AAPL shares. He writes, “Given Apple's high exposure to China from both a demand and supply chain perspective with its flagship Foxconn factory front and center, a potential draconian tariff on iPhones and related components would have been a tough gut punch to absorb…” Ives’ $200 price target and 14% upside on the stock reflect his optimism.

At the same time, Baird’s five-star analyst William Power (Track Record & Ratings) based his overview on Apple’s product universe. Noting that iPhone sales are slowing, he believes that the iconic smartphone will retain strong market share. In addition, he suggests “newer products like Apple Watch, and services like Apple Music, underscore the eco-system opportunity.” Power sets a more conservative price target than Ives, of $185, giving the stock a 6% upside potential.

Both analysts, however, give Apple higher ratings than the average. AAPL’s ‘Moderate Buy’ rating is based on an 18-18 split between ‘buy’ and ‘sell’ reviews, and the average price target of $177 indicates a low 1.6% upside with the stock trading at $174.

Facebook, Inc. (FBResearch Report)

We’ve all seen Facebook in the news, it’s been impossible to avoid. From the Cambridge Analytica data scandal to Mark Zuckerberg’s Congressional testimony, Facebook’s top brass has been repeatedly called on the carpet in the last year or so, putting the company firmly in the sights of the governmental regulators and scaring off investors.

While the data privacy scandals have hurt Facebook’s reputation, they have not, however, hurt the company’s greatest strength: Facebook boasts over 2.25 billion monthly active users worldwide, and the company’s four main platforms (Facebook, Messenger, Instagram, and WhatsApp) are four of the seven most popular social media outlets. With so much reach available to advertisers, Facebook has been able to keep the revenues coming in despite the bad press.

Market analysts have been focusing on those strengths. Mark Zgutowicz (Track Record & Ratings), writing from Rosenblatt Securities, says that he “remains an aggressive buyer of Facebook shares, given the social media company's stable fundamentals and an accelerating earnings growth profile.” He backs up that stance with a $212 price target and 22% upside on FB shares.

Citigroup analyst Mark May (Track Record & Ratings) agrees with that bullish outlook on Facebook. He bases his conclusion on Facebook’s strong investment in data centers, reducing the company’s dependence on third-party providers. He points out that FB “three years ago began the process of significantly expanding its O&O DC footprint and now operates 10mn sq. ft. of capacity.” He sees this as a net gain for the company, and sets a modestly bullish price target of $185, suggesting a 7% upside to the stock.

Facebook shares seem to be justifying the upbeat outlook. The stock is up 38% since hitting bottom at the end of December, and the analyst consensus on FB shares is a ‘Strong Buy’ based on 32 ‘buy’ ratings, 5 ‘holds,’ and 2 ‘sells.’ FB is trading at $172; the average price target of $190 gives an upside potential of 10%.

Author: Michael Marcus

Disclosure: This author holds a long position in Apple, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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