To the victors go the spoils, the saying goes. That certainly holds true with internet companies, where several definite winners have emerged, namely the FANG stocks.
Facebook (FB) dominates in online social networking and social media. Amazon.com (AMZN) rules the markets for e-commerce and cloud-computing infrastructure. Netflix (NFLX) has taken a huge lead in subscription video on demand. And Alphabet‘s (GOOGL) Google is the king of internet search.
The four household names are plays on some of the hottest technology trends, including cloud computing, streaming media, smart homes and artificial intelligence.
CNBC’s “Mad Money” host Jim Cramer coined the acronym FANG in 2013 to collectively refer to the four high-growth internet stocks.
The term caught on in part because headline writers love playing with the word. Some examples: “The FANG Stocks Bite Back” and “FANGs Retracted: Netflix, Other Top Nets Lose Bite.”
What Does FANG Stand For In Stocks?
Take the first letter of each stock and you get FANG.
In October 2015, Google restructured and placed its legacy business under an umbrella corporation called Alphabet Inc. Alphabet is now the parent company of Google and subsidiaries like Chronicle, Verily and Waymo.
But investors stuck with the acronym FANG rather than switch to FANA. Headline writers couldn’t do much with the latter.
Who Are The FAANG Stocks?
Some Wall Street pundits couldn’t leave well enough alone and decided to add Apple (AAPL) to the FANG stocks. This group has the ungainly name FAANG. Some have taken to calling FAANG stocks the FANG+ or FANG Plus stock group.
While Apple is a U.S. technology giant like the other stocks, it gets most of its revenue from hardware such as iPhone, iPad and Mac computers. Still, one growth driver of late has been internet cloud-based services including the App Store, iCloud, Apple Pay, Apple Music, Apple TV+ and Apple Arcade.
Other FANG Variants Suggested
Beyond FAANG stocks, other variations on FANG have been proposed.
In June 2017, Goldman Sachs coined the abbreviation FAAMG for Facebook, Amazon, Apple, Microsoft (MSFT) and Google.
Then, in October 2017, Bank of America suggested adding chipmaker Broadcom (AVGO) and digital media and marketing software firm Adobe (ADBE) to the FANG stocks to create FAAANG.
In July 2018, the Financial Times proposed a stock group called MAGA as a nod to U.S. President Donald Trump’s slogan, “Make America Great Again.” The group included Microsoft, Apple, Google and Amazon.
Trump drew attention to the MAGA group at a media briefing in February 2020. He referred to the companies as the “Trillion Dollar Group” for each having reached a valuation over $1 trillion.
In August 2018, Cramer suggested that maybe WANG might be a new group to watch. WANG includes Walmart (WMT), Apple, Netflix and Google.
In May 2019, two Wall Street analysts proposed adding ride-hailing firm Uber Technologies (UBER) to the FAANG stocks list. However, they couldn’t decide where the U would go.
In October 2019, Cramer suggested that Netflix be removed from FANG and replaced with Microsoft. He suggested the name FAAM, CNBC reported. Presumably, the name would use Alphabet instead of Google.
In June 2020, brokerage firm Baird said it preferred the WASP basket of e-commerce stocks to the FANG group. WASP includes Wayfair (W), Amazon, Shopify (SHOP) and PayPal (PYPL).
Is There A FANG ETF?
There is no exchange traded fund dedicated solely to the four FANG stocks, though some are heavily weighted to the group.
First Trust Dow Jones Internet (FDN) is one such FANG-themed ETF. It seeks to track with the performance of the Dow Jones Internet Index. That index selects stocks with a three-month average market capitalization of at least $100 million and other liquidity measures. The Dow Jones Internet Index is weighted by market cap, so FANG stocks top the index.
In 2017, First Trust Dow Jones Internet raced 37.6% higher. But in 2018, it rose just 6.2% after tech stocks fell late in the year. In 2019, it increased 19.3%, but that compares with 28.9% for the S&P 500 and 35.2% for the Nasdaq.
Last year, the ETF rocketed 52.6%. In comparison, the Nasdaq index rose 43.6% in 2020, besting the 16.3% gain by the S&P 500 and 7.2% advance by the Dow.
So far this year through June 15, First Trust Dow Jones Internet is up 10.4%. Meanwhile, the Dow is up 11% and S&P 500 is up 12.3%. The tech-heavy Nasdaq index is up 8.6% year to date.
Should You Invest In FANG Stocks?
The FANG stocks have been a mixed bag lately.
Facebook stock broke out of a 31-week consolidation period at a buy point of 304.77 on April 5, according to IBD MarketSmith charts. It hit an all-time high of 339.92 in intraday trading on June 15.
Amazon stock hit a record high of 3,554 on April 30 after a 34-week consolidation period. But it quickly reversed. Since then, it has formed a cup base with a buy point of 3,554.10, based on IBD trading principles. Amazon stock finished the regular session June 15 at 3,383.13.
Netflix stock reached an all-time high of 593.29 on Jan. 20 after posting better-than-expected fourth-quarter results. However, it has been drifting downward since then. Netflix stock closed the regular session June 15 at 491.90.
Google stock broke out of a flat base at a buy point of 2,431.48 on June 10. It notched a record high of 2,455.51 intraday on June 15.
How To Find The Best Stocks
As always, investors need to do their homework and rely on hard data, not hunches. Look for stocks with strong sales and earnings growth and with charts forming proper bases under the right market conditions. Check out the links at the bottom of this article for analysis on each of the FANG stocks.
To find the best stocks to buy and watch, check out IBD’s Stock Lists page. More stock ideas can be found on IBD’s Leaderboard, MarketSmith and SwingTrader platforms.
Consult the IBD University for how to get started trading stocks.
New Challenges For FANG Group
The companies in the FANG group are facing a host of pressures now.
Amazon.com and Google have come under regulatory scrutiny for possible anti-competitive business practices. Facebook and Google have been criticized for lack of data privacy and security. And Netflix is confronting a flurry of new competitors in streaming video as well as a heavy debt load associated with content production.
Facebook is under pressure to moderate its platform better to weed out hate speech, fake news and other unwanted content.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
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