Long-term investing is hard. Identifying the stocks that you can hold for the long-term and earn a consistent profit is not an easy skill to obtain. And as investors, we all have made the mistake of either selling stock too quickly or holding on to it for too long. Either way, we will have missed an opportunity to earn a pocketful. 

Recently a bunch of stocks has become the favorite for investors. Known under the Acronym FAANG, these stocks have managed to outperform others in the market consistently and have earned a reputation of being investor-friendly. In recent months, however, things haven’t been looking so bright and sunny for the FAANG stocks. This has alerted the investors. 

In this article, we are going to have a closer look at the FAANG stocks and analyze what is happening in the market.

What Are FAANG Stocks?

The acronym FAANG stands for Facebook, Amazon, Apple, Netflix, and Google (or previously known as Alphabet). These are the largest tech companies in the US and a favorite among investors. The FANG was first coined by the host of CNBC’s Mad Money, Jim Cramer, who applauded the companies for dominating the market. The second ‘A’ in the acronym, stands for Apple and was added in 2017. 

How did they rise to prominence during the pandemic?

During the pandemic, when the countries were on lockdown and the stock market around the world was falling, FAANG stocks had a different tale to tell. The demand for new phones was high. As a result, the subscription on OTT platforms like Amazon Prime and Netflix skyrocketed. People also found time to spend more time on Google and Facebook as well. As a result, the stocks went on a huge rally. FAANG stocks didn’t have any problem meeting investors’ expectations and making high-grade sales.

Facebook announced a rise of 12% year-over-year in Active users, underlying its dominance in the social media market. Facebook recorded a 22% year-to-date price return. In June 2020, Facebook published a record of net income rising by a whopping 98%.

Apple also recorded 49% of year-to-date. During the pandemic, the company managed to raise its revenue by 11%. Year-over-year EPS also went up to an impressive 18%

With the demand for e-commerce and cloud computing during the lockdown, Amazon became the biggest winner in the market. They recorded a stupendous 70% rise. Apple delivered a $5.2 billion profit in the second quarter of 2020.

During the second quarter, Netflix recorded 10.1 million new subscribers. They also added more than $100 million worth of movies and series.

Netflix reported $61 million in revenue. They also witnessed a 21.3% year-over-year revenue. 

Google managed just a 10% year-to-price return after they saw a significant income cut from small businesses and the travel industry due to COVID. These are Google’s biggest suppliers. Regardless, the company still managed to rise 21.5% in earnings.

Why are they struggling now?

Everything was set for these companies to dominate the market, but lately, they have been moving downwards. Why? We are accessing it here one by one.

Facebook: the biggest knock on Facebook’s dominance came with privacy issues. The attempt Russia made to tamper with the US election via Facebook had raised a big red flag. This hasn’t gone well with the investors.

For Google, it was a different issue. Google had dominated the ad world over the last decade, but now they are facing increased competition from social media sites, apps, and voice recognition. This has changed the way people think of the internet. 

While Netflix continues to gain subscribers globally, the future growth of the company looks uncertain. They live in a world, where content is king and continuously delivering high-quality content is a difficult task.

Despite amazon disclosing very little information about the company, it has managed to win investors. Usually, thin margin and little profitability and secrecy are a red flag for any stocks but that has not been the case for Amazon. So what is the reason why it has slowed down? Amazon is now focused on reinvesting. While this might seem an impressive thing, it actually is not. When the valuation multiple comes down, it will always take the stock price with it.

What happened to Apple is an interesting case. Apple is in the process of the next iPhone upgrade. 

But the other four stocks in FAANG have decided to lay a battlefield to fight Apple’s dominance. As a result, Amazon is now pricing hardware devices so low in an attempt to destroy iPad and Apple TV. Amazon is also struggling to gain subscribers. YouTube, Netflix, and Amazon Prime are already household names in the OTT business and for some reason, people seem to turn their faces away from Apple.

Should you panic?

No, no by any means. If you are an investor, you already know when I say that the market is sentiment-driven. These kinds of swing low and swing ups are more common than you think. Especially during recent years. A sentiment-driven market is highly volatile and complacent. The risk-on/ risk-off factor plays an important role there. The good old days of low volatility and consistency are long gone. So as an investor, the first thing you should learn is to filter the noise to avoid making wrong moves.

So remember these two things:

Fundamentals matter. Eventually, a stock with strong fundamentals will grow, regardless of sentimental swings.

The technology sector always has new opportunities to grow. This second one is especially relevant to FAANG stocks. 

Our Thoughts

While it might be tempting to sell your FAANG stock and get out, you might want to hold them. If you have any experience in the market, you know that companies when they reach their market potential will decline their growth rate. And the chances are this is happening to FAANG stocks now. 

So, don’t panic. These companies are fundamentally strong and a sentimental swing shouldn’t be the reason for you to dump them.