The beaten down FAANG stocks, once the hottest group on Wall Street, have fallen into disfavor favor among investors. While their valuations have plunged, forecasts for robust revenue growth close to 20% or higher over the next couple of years may lift stock prices again for many of the FAANGs, per a detailed story in MarketWatch.
Amazon.com Inc. (AMZN) serves as a strong example. While its forward price-to-earnings multiple has fallen 28%, the e-commerce leader is expected to see revenue jump by 20% this year. (See table below.) Meanwhile, Alphabet Inc.’s (GOOGL) forward valuation has dropped by 13%, yet the firm is still expected to see its top line grow by 19%. Netflix Inc.’s (NFLX) forward valuation has declined 10%, while revenue is seen rising 25%, per MarketWatch
This discrepancy between stock value and growth could serve as a prime opportunity for investors to buy some of the biggest names in tech at a discount.
3 FAANGs With Big Upside
· Amazon; 28% fall p/e 2019; 2019 sales forecast: 20%; 2019 eps forecast: 36%
· Alphabet; 13% fall p/e 2019; 2019 sales forecast: 19%; 2019 eps forecast: 13%
· Netflix; 10% fall p/e 2019; 2019 sales forecast: 25%; 2019 eps forecast: 53%
While stock valuations for the large-cap tech titans may not have fallen far enough to consider them value stocks, strong consensus estimates for sales growth and earnings could render them bargain buys. A majority of sell-side analysts polled by FactSet recommend buying FAANG companies apart from Apple Inc. (AAPL), which has lowered guidance.
Double-digit top line and bottom line growth for the tech behemoths comes at a time when analysts are forecasting decelerating growth for the economy at large. Sales growth for S&P 500 companies is forecast to slow to 5.3% in 2019.
Last week, analysts a KeyBanc Capital Markets shared their favorite Internet stock picks for 2019, citing Alphabet and Facebook among its overweight-rated stocks, per Barron’s. “We view Alphabet as the global leader in collecting, analyzing, and productizing data, which may be the most valuable skill of the Internet era,” wrote KeyBanc. “The Company retains a dominant position in search and short-form video, both of which continue to grow quickly.”
Citi Research echoed the bullish sentiment, highlighting Amazon as the best idea in the firm’s coverage universe in a note on Monday, per Barron’s. Citi expects Amazon stock to gain roughly 30% over 12 months, thanks to its “relentless pace of innovation, including into new arenas like healthcare,” which should “bolster the long-term growth thesis.”
Analysts Less Certain on Facebook, Apple
Apple and Facebook Inc. (FB), despite their dramatically lower stock prices, are more of a mixed bag. While Facebook looks strong on sales, earnings may be flat in 2019 and its valuation has barely fallen, per the MarketWatch. Apple looks cheap at its current valuation, but its sales and earnings outlook is basically flat.
The performance of this group of tech titans relies on a variety of factors including how well they maintain their dominance - and their fast growth - in burgeoning markets such as subscription services, messaging and online commerce. If they fail to do that, their shares may falter even in a bull market and could plunge in a bear environment. For now, though, several of them have revenue and earnings growth on their side.