Which FAANG+M Stock Is a “Buy”?
Last June, I wrote about the FAANG stocks.
You know the ones… Facebook (Nasdaq: FB), Amazon (Nasdaq: AMZN), Apple (Nasdaq: AAPL), Netflix (Nasdaq: NFLX) and Google parent company Alphabet (Nasdaq: GOOGL).
At the time, Amazon and Netflix were soaring thanks to pandemic-induced surges in online shopping and video streaming. Microsoft (Nasdaq: MSFT) was also outperforming, thereby solidifying its spot among the tech kings. Many analysts call this group FAANG+M.
But these days, an unexpected member of the club – the worst performer of 2020 – is sporting an enviable rating.
Apple, Google and Microsoft are currently labeled “Overvalued.” This means their prices are double or triple their fair values – what the prices should be based on earnings and growth.
This rating shouldn’t shock anyone because the markets are at all-time highs. Investors like to put their money into familiar companies – and those don’t get more ubiquitous than this trio.
Based on current metrics, all three are expected to produce negative returns over the next five years.
Amazon and Netflix are “Near Fair Value” – meaning their prices are slightly higher than fair value, but the stocks are more or less well-priced. They’re expected to produce modest gains.
Facebook – on the other hand – is considered “Undervalued” right now. This means its fair value is actually higher than its current price.
It’s the only one in the group that is expecting a 40% return over the next five years.
And it’s the only one of the Nasdaq’s top 10 most heavily weighted stocks that is undervalued right now.
How could this be? Isn’t Facebook under fire for alleged privacy violations and antitrust concerns? Isn’t it the center of a historic political tug of war?
Yes and yes. But that volatility is already priced in!
There are plenty of reasons to be bullish on the social network. For one thing, its daily active user growth has remained strong and steady at around 79%. It has reported consistently strong average revenue per person. And its advertising algorithm has proven to be effective at monetizing current users.
Additionally, Facebook is a key player in improving global Wi-Fi access. Though this is a huge undertaking, it would potentially double the platform’s addressable market.
Lastly, Facebook owns Instagram and WhatsApp, two popular social media watering holes that are helping the company touch every corner of the internet.
In the short term, Facebook may still see some ups and downs. Founder and CEO Mark Zuckerberg is still trying to create the controversial “Instagram for kids.” And the partisan feud being fought under Facebook’s jurisdiction is heated, to say the least.
But it’s not often that we see a blue chip so reasonably priced – especially one of the FAANG+M stocks, which are notoriously overinflated.
Facebook went from being the “biggest loser” of 2020 (with a 30.9% gain compared with Amazon’s 76.6%) to “most likely to succeed” in 2021.
That’s a comeback investors should certainly keep in focus in the months ahead.