The Big 5 - Investing in FAANG Technology Stocks
Reading time: 17 minutes
Headline writers love FAANG stocks almost as much as investors do. If you've been trawling through the internet looking for investment tips, you may have come across articles such as 'FAANG Stocks Show Their Teeth' or 'FAANGs Retracted: Top Stocks Lose Their Bite'.
However, as well as being a pun lover's dream, FAANG stocks are highly popular with single stock investors who have seen the popularity and stock prices of the companies involved boom over the past decade. But, what are FAANG stocks? And should you invest? Let's take a look.
What Are FAANG Technology Stocks?
FAANG is an acronym that includes the names of five of America's largest technology companies.
The companies included are:
F – Facebook (FB)
A – Amazon (AMZN)
A – Apple (APPL)
N – Netflix (NFLX)
G – Alphabet, formally known as Google (GOOG)
Each of these stocks trades on the Nasdaq stock exchange and are included within the S&P500 Index. Combined, the companies that are part of the FAANG group account for around 15% of the S&P500.
FAANG is an American term first used by television personality Jim Cramer back in 2013. On his CNBC show, he heaped praise on the original four FANG companies of Facebook, Amazon, Netflix and Google, noting that they were dominating their respective markets to such a degree that they seemed unstoppable. The term took hold in investing circles and, in 2017, Apple was added to the group and the acronym was expanded to FAANG.
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What are FAANG Companies Known For?
Many market analysts consider the companies to be a bellwether for the S&P500 Index and the American economy as a whole. Each company is known for its exponential growth and market dominance.
This is clearly displayed when we consider the value of the companies in the FAANG grouping. As of January 2020, the companies had a combined market capitalisation of over $4 trillion. In addition to this, historically speaking, the FAANG companies have outperformed both the S&P500 Index and the more technology-focused Nasdaq.
However, as all good investors know, past performance isn't necessarily an indicator of future success. But, due to their market dominance, all five of the FAANG companies do hold competitive advantages over their competitors, which is why many market analysts see them as attractive long-term investments. To see how each stock has performed over the last decade, let's take a look at each company's performance in greater detail.
Company Summary: Facebook is a social media giant, but the social media platform's parent company owns much more than just the popular networking app. It also owns Instagram, WhatsApp and Messenger. As a result, the company has access to over 2.5 billion active users. The company primarily makes its money by advertising to these users.
Recent Company Performance: If you bought into Facebook stock at the closing bell on December 31st 2009, you would have been up almost 450% at the same point a decade later. As of January 2020, the company posted a net income of over $18 billion in its trailing twelve months (TTM).
Below is a long-term weekly price chart from 2012 to 2020 of Facebook's share price taken from the MetaTrader 5 trading platform provided by Admiral Markets.
Source: Admiral Markets MetaTrader 5, #FB, Weekly - Data range: from 13 May 2012 to 30 May 2020, accessed on 30 May 2020 at 12:18 pm BST. - Please note: Past performance is not a reliable indicator of future results.
In the above chart, Facebook's share price has stayed above the 200-period exponential moving average (the wavy green line) since price first crossed above it in the middle of 2013. Traders will often use technical indicators like moving averages to help confirm the overall trend of the market as well as to help identify trading levels to initiate positions from.
To add a moving average onto your chart, open your MetaTrader 5 trading platform which you can download for free from Admiral Markets and then follow the next steps:
- Select Insert from the top menu, then Indicators, Moving Average
- In the period box, input the length of the moving average you would like to view (100 and 200 are considered long-term moving averages). You can also change the Method but Exponential and Simple are the most commonly used. You can also choose a colour to code different moving averages on your chart.
Company Summary: Amazon's Prime membership program now has over 150 million subscribers who are active, paying customers. E-commerce still accounts for the vast majority of the company's revenue, but Amazon has also recently begun an ambitious growth campaign in other markets, including advertising and cloud computing. Perhaps it's no wonder company founder Jeff Bezos is on track to become the world's first trillionaire.
Recent Company Performance: Since 2009, Amazon has seen its stock price rise by almost 1,300%. The company now offers over 120 million products on its e-commerce platform. As of January 2020, Amazon also had TTM revenues of $265 billion and a net income of $11 billion.
Below is a long-term weekly price chart from 2011 to 2020 of Amazon's share price taken from the MetaTrader 5 trading platform provided by Admiral Markets.
Source: Admiral Markets MetaTrader 5, #AMZN, Weekly - Data range: from 13 May 2012 to 30 May 2020, accessed on 30 May 2020 at 1:18 pm BST. - Please note: Past performance is not a reliable indicator of future results.
In the above chart, Amazon's share price has stayed above both the 100-period exponential moving average (the wavy black line) and the 200-period exponential moving average since price first crossed above them in the middle of 2012. As in the case of Facebook's share price, the direction of price often turns around these large moving average levels.
In the case of Amazon, significant turns in price occurred on the 100-period exponential moving average meaning that buyers have been stepping in even earlier on any dips to 'buy it low'. This is a confirmation of just how strong the long-term trend is.
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Company Summary: Apple was once in a smartphone war with Samsung, with both brands battling for supremacy. However, Apple has emerged as a clear winner and the smartphone manufacturer is now stronger than ever. Although device sales still account for the vast majority of the brand's revenue, Apple recently began to focus on higher-margin products, such as their streaming services and cloud storage offering. Thanks to this lock-in effect, the Apple ecosystem creates real brand advocates. With the recent launches of Apple Arcade and Apple Music, this lock-in effect is now set to grow further in the coming years.
Recent Company Performance: Since 2009, Apple's stock price is up over 1,000%. In the first quarter of 2020, the company reported better-than-expected results. They announced that total revenue for the first quarter of the year was $91.8 billion. Worldwide, the company's revenue in 2019 was over $260 billion.
Below is a long-term weekly price chart from 2011 to 2020 of Apple's share price taken from the MetaTrader 5 trading platform provided by Admiral Markets.
Source: Admiral Markets MetaTrader 5, #AAPL, Weekly - Data range: from 26 June 2011 to 30 May 2020, accessed on 30 May 2020 at 2:18 pm BST. - Please note: Past performance is not a reliable indicator of future results.
In the above chart, Apple's share price has remained relatively similar to Facebook and Amazon's. The path higher has been a bit more bumpier with more temporary declines in price within the overall uptrend. However, the price has still frequently bounced and turned higher from the long-term moving averages on the chart signifying how 'in demand' the company's share price has been to long-term investors and traders.
Company Summary: Although it's hard to believe now, Netflix originally started as a DVD-by-mail delivery service to rival the popular Blockbuster. However, it began to shift to a streaming service back in 2007 and has never looked back (while Blockbuster has sadly fallen the other way). Netflix began producing its own content in 2012 and the company is now one of the biggest buyers of film and television productions in the world. Plus, Netflix boasts over 183 million global paying subscribers from over 190 countries.
Recent Company Performance: Over the course of the past decade, streaming service Netflix has been the best performing of all the FAANG stocks, and investors who purchased stock in 2009 are up over 4,000%. In the last quarter of 2019, the company vastly outperformed expectations, adding a further 8.76 million paid net subscribers globally. The company also posted $5.47 billion in revenue, which is over 30% more than some analysts predicted.
Below is a long-term weekly price chart from 2011 to 2020 of Netflix's share price taken from the MetaTrader 5 trading platform provided by Admiral Markets.
Source: Admiral Markets MetaTrader 5, #NFLX, Weekly - Data range: from 5 June 2011 to 30 May 2020, accessed on 30 May 2020 at 3:18 pm BST. - Please note: Past performance is not a reliable indicator of future results.
In the above chart, it's clear to see the rocky path that Netflix's share price has endured. The most notable move is the crash lower in 2015, shown by the long red vertical bar in the middle of the chart. This wasn't actually a market crash but a stock split that took place on 15 July 2015. On this day, the company announced a seven-for-one stock split.
However, since then the stock price has continued to rise higher but not as smooth as some of the other FAANG stocks. This is also shown the frequent crossing over of the long-term moving averages on the chart.
Alphabet, Formerly Google (GOOG)
Company Summary: Alphabet, Google's parent company, is a tech conglomerate that owns many customer-facing products. In fact, nine companies owned by Alphabet boast over 1 billion users each, including Android, Chrome, Maps, Search, YouTube and Gmail.
Recent Company Performance: If you invested in Google/Alphabet stock at the end of 2009, you would have been up by almost 350% a decade later. In the final quarter of 2019, the company passed $1 trillion on market cap for the first time. In the same earnings report, they announced over $46 billion in revenue. They also announced that YouTube ads generated over $15 billion in revenue throughout 2019. Google's cloud business generated almost $9 billion throughout the year, while Google's total advertising revenue hit almost $38 billion in Q4 alone. This was the company's best-ever performance in terms of advertising revenue.
Below is a long-term weekly price chart from 2007 to 2020 of Alphabet's share price taken from the MetaTrader 5 trading platform provided by Admiral Markets.
Source: Admiral Markets MetaTrader 5, #GOOG, Weekly - Data range: from 25 March 2007 to 30 May 2020, accessed on 30 May 2020 at 4:18 pm BST. - Please note: Past performance is not a reliable indicator of future results.
In the above chart, it's clear to see the long-term uptrend in Alphabet's share price. However, the path higher has been much rockier than some of the other FAANG stocks, perhaps apart from Netflix. The significant drop seen in the middle of the chart is when the stock was split on 3 April 2014. This is where investors who held 1,000 shares of the stock now owned 1,998 shares.
Before and after the stock split, Alphabet's share price performed quite well. Even the moving averages during these times were going up in a smooth manner showing the commitment from long-term investors.
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Should I Invest in FAANG Stocks?
If you invested an equal amount in all of the FAANG stocks at the close of 2009, you would have been up around 1,500%.
However, recently the performance of FAANG stocks has been mixed. For example, although Amazon's stock price continues to soar, Facebook's stock price has tumbled from a record high set on January 29 2020. Similarly, Google's stock fell by 34% in 2020, while Netflix's stock price continues to edge higher thanks to continued subscriber growth.
Looking to the future, we need to be aware of how market pressures will influence these companies. For example, stricter regulation means that all of these companies now face more regulatory pressures than they ever have previously. In the past few years, regulatory watchdogs have accused both Amazon and Google of using anti-competitive business practices, while Facebook has been asked to give evidence to the Houses of Parliament in the UK and the Senate in America about data privacy and data security.
Plus, although all five companies have been marked by their market dominance over the past decade, they're now facing an increasing amount of competition (sometimes from each other as all five companies expand their product line). For example, although Netflix has been the world's most popular streaming service for several years, Apple has now launched Apple TV, while Amazon launched their Amazon Prime service.
Similarly, American TV giants like HBO are in the process of launching their own service and Disney recently released Disney+. Not only will this cause greater competition in the market, but it will also hamper Netflix's product line as some television networks will remove their shows from Netflix in order to provide them exclusively via their own streaming service.
As a result, when investing in stocks you should not consider past performance as an indicator of future price growth. Instead, you should research the hard data on each company's stock price before you invest. Look for markers like strong sales and earnings growth, while also monitoring underlying market conditions.
To place a trade on any of the FAANG stocks are other markets you are interested in trading, you first need to open your MetaTrader 5 trading platform provided by Admiral Markets and then follow the next steps:
- Open the Market Watch window column from the View menu at the top of the platform. A list of symbols will open.
- Right-click in the Market Watch window column and select Symbols.
- This will allow you to search for your symbol or add a group of different asset classes into your watchlist in the Market Watch window column. Alternatively, you can search for the instrument you wish to trade by typing the name in the search box at the bottom of the Market Watch window.
- Once the relevant symbol is in your Market Watch window column, simply drag the symbol onto the chart.
- Right-click on the chart, select Trading and New Order. Alternatively, click F9 on your keyboard. A trading ticket will open.
A screenshot of the MetaTrader 5 trading platform provided by Admiral Markets showing a trading ticket.
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About Admiral Markets
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or recommendation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.