What a difference a year makes! Last summer, no matter how good a stock analyst you were, if you didn’t own large positions in the FAANG stocks — Facebook, Amazon, Apple, Netflix and Google — you probably lagged the market.

This summer, the dynamic has flipped. The S&P 500, Dow Jones Industrial Average, and Nasdaq are hitting new highs. But they’re not driven by the FAANGs — which have yet to pull off the same feat.

Amazon.com comes the closest to reaching last year’s highs. But Facebook, Apple, Netflixand Alphabet all remain well off their peaks of last summer. One big reason: Many investors remain on the sideline because of fears about heightened regulation and a possible slowdown in growth.

It feels weird to say this about what were the world’s most popular stocks for years. But all of this makes some of the FAANGs — dare we say it? — a contrarian play.

That’s the take of Barclays Research large-cap internet analyst Ross Sandler. “The S&P is currently achieving new all-time highs without the leadership of large-cap internet, and contrarians like us would view this as favorable,” says Sandler. He says his bullish view goes up against mixed sentiment towards these names following several quarters of decelerating growth, and heightened regulatory scrutiny.

But these are still solid companies. They’re economically sensitive, so they should get an extra boost as the economy continues to strengthen, which is what I expect from here. And those regulatory concerns are probably overblown, if history is any guide.

The upshot: Among the FAANGs, Amazon, Alphabet and Facebook look like a buy going into earnings season, when results could dispel some of the growth concerns. “We generally like the backdrop for large-cap internet heading into second-quarter earnings,” says Sandler.

Here’s a closer look at the two main issues bugging these names, and why these concerns may be fully priced in by now.

Circling For The Kill

Politicians are obviously circling the FAANGs.

  • On July 11, President Donald Trump hosted a “social media summit’ at the White House, where Trump harped on the suppression of conservative social media influencers on platforms like Facebook, Twitter and YouTube.

“In our view, this represents an early-stage step to a long process of the U.S. government pushing back against the big technology companies,” says Larry McDonald, a savvy macro analyst who pens the Bear Traps Report. He suggests selling the FAANGs and Microsoft because of antitrust investigation and regulatory risk. He predicts large-cap tech names could fall 30%-40% over the next 12 months.

  • On Tuesday, the House antitrust subcommittee is scheduled to questionexecutives from Amazon, Apple, Google and Facebook. Politicians on the left and right are concerned about the concentration of power among online media giants, abuse of this power, and abuse of data collected on users.

Priced In

Clearly there’s blood in the water. But isn’t this pretty well known by now, and probably priced in to these stocks? I think so.

  • DoubleLine Capital’s Jeffrey Gundlach first laid out the bear case on Facebook due to regulatory concerns at a Sohn Conference over two years ago.
  • It’s almost impossible to watch an episode of any of the chat shows that drip feed White House talking points — like “Hannity” or “Tucker Carlson Tonight” — without seeing some reference to the issues above. Carlson ominously sums it all up with the catch phrase “Tech Tyranny” in a standing graphic.
  • CNN and MSNBC regularly took down Facebook, at least until recently, for helping Trump supposedly “collude with the Russians” to swing the 2016 election.
  • It seems like all media regularly lament the abuse of personal data that we give up by participating on these platforms.

Sure, the Federal Trade Commission just fined Facebook $5 billion for various privacy violations. But that’s just a one off business expense, and it’s relatively small considering that Facebook takes in $15 billion a quarter. So it wasn’t a great surprise that the stock actually went up on news of the fine.

Yes, we got the message. Internet giants. Bad.

Tough Case To Make

But history shows that investors can continue to do well even during antitrust investigations and other kinds of heightened regulatory scrutiny on companies.

Brian Yacktman, portfolio manager for the YCG Enhanced Fund, thinks worries about Alphabet are overblown, citing concerns about similar issues facing Microsoft starting in the early 1990s.

“There is precedent that regulatory fears initially are overblown,” says Yacktman. “A stock can still thrive during an ongoing investigation.”

“There is precedent that regulatory fears initially are overblown,” says Yacktman. “A stock can still thrive during an ongoing investigation.”

“It is going to be difficult to prove harm to consumers that would warrant breaking up these companies,” says Yacktman. “How can you prove there is an antitrust issue when there are all these other options available to advertisers?”

As for Amazon.com, it’s lowering prices for consumers. So it’s going to be tough to prove that Amazon’s platform is causing harm, says Yacktman.

Breaking Up Is So Good To Do

Even in a breakup scenario, which is still possible, investors could win. There is a good chance the new stocks could go up a lot, since the separations could unlock the value of individual divisions.

PayPal and eBay each traded higher after they split up, because the separation helped investors better recognize the value of each separate company. YouTube is so popular, it would probably get a higher valuation on its own than it does inside Alphabet. Amazon’s cloud platform, AWS, probably misses out on some business because Amazon competitors don’t want to put their data on Amazon’s servers.

Regulation Might Be A Good Thing

“The bear story is that regulations are going to hurt them financially and inhibit their ability to grow their businesses. I don’t think that’s going to happen,” says John Conlon, the chief equities strategist at People’s United Advisors.

Regulation, for example, may mean platform users have to more explicitly sign off on the use of their data. But that might not be a problem. “Their customers want to use their products, so I am sure they are going to be signing off. Anybody that wasn’t aware these companies are using this information, they have to be pretty naive.”

These companies all have “tremendous” cash flow, so financially they will be able to handle any hit from regulation, says Conlon. A hit that might not end up being that severe. “Europe is already imposing some regulation and it really hasn’t hurt their businesses there,” says Conlon.

Besides, regulation could actually help these companies by making it tougher for new entrants without the strong cash flow to break in. In some ways, Internet giants might welcome regulation because it would inhibit competition, he says.

False Growth Concerns

These companies still have the qualities that outperforming managers like Yacktman look for in good, long-term investments. They have pricing power. They have high rates of return on invested capital which means they can put cash flow to use in a way that helps shareholders.

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