My Take on FANG Stocks

2015 was a great year for the so-called FANG stocks. FANG is an abbreviation for Facebook (FB), Amazon (AMZN), Netflix (NFLX), and Google (GOOG)(GOOGL). The FANG stocks were four of the best performing large cap stocks in 2015. The start to 2016 has been pretty rough and the million dollar question is whether or not the FANG stocks will be able to continue their upwards trajectory.

I have been bearish on the U.S. stock market for a few months now and I have been advising investors to prepare for a market correction by having a large short position.
I expect the current market correction to continue, which is why I think that three out of the four FANG stocks will not have a good year as they are overvalued even after the current correction.

Three are Overvalued

FANG stocks have corrected considerably over the last few days. As of now, I think three FANG stocks are still overvalued and only one is worth buying in the present market scenario. The one worth buying is Google.

Google, now called Alphabet, has followed Facebook, Amazon and Netflix down this year. However, unlike the other FANG stocks, Google is trading at a discount and is the only stock worth buying. Google is currently trading at 20x forward earnings and the valuation is conservative considering Google’s owns over 60% of the domestic search market.

While Google is undervalued, the other three FANG stocks are expensive. Facebook is currently trading at 100x trailing earnings. However, Amazon and Netflix are extremely expensive are trading at 881x and 310x trailing earnings. Given the present market condition, I think investors should sell Amazon, whereas Netflix makes for a great short candidate. Facebook is also overvalued and investors looking to initiate a long position should wait for a better entry point.

Conclusion

Investors shouldn’t expect FANG stocks past performance to continue in 2016. With the market in correction mode, I think investors should avoid Amazon and Facebook, and short Netflix. Amazon and Netflix in particular have razor thin profit margins and it will be impossible for them to justify their current valuation.

As for Google, the company’s dominating presence and assets like YouTube make the stock undervalued. As opposed to the other FANG stocks, Google is trading at a discount valuation and is my favorite of the FANG stocks. Hence, investors can consider buying in for the long-term.
Published on Jan 19, 2016
By Ayush Singh

Copyrighted 2016. Content published with author's permission.

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