Displaying items by tag: faangs

(San Francisco)

The market has become very worried about tech valuations. Even with recent selloffs, tech stock prices are very rich. However, despite the broad fears, some fund managers are ditching the concerns, as they think the obsession with P/E ratios is short-sighted for tech. In particular, one manager says that he likes to think about how tech companies will look as mature businesses, and thus judging them by their current P/E ratios is unfair.

FINSUM: We agree that it is hard to assess tech stocks according to standard P/E ratios. They are growing much faster, have much higher margins, and have a brighter future than stocks in any other sector of their size. Accordingly, it is hard to contextualize their P/E ratios because there is no benchmark.

(New York)

Morgan Stanley has put out a warning about the worryingly declining breadth of the stock market this year. The bank says that “Fewer stocks are carrying the load of the market, a sign of exhaustion and, in our view, a bad signal for further price gains”. The bank appears to be quite correct. According to the article “Bloomberg points out that Amazon.com, Netflix and Microsoft accounted for 71% percent of the S&P’s gains through early July. Along with Apple, Alphabet and Facebook, they accounted for 98% percent of the gains”.

FINSUM: Honestly that could not be a more worrying sign on breadth. 98% of gains from from 6 stocks. That does not spell widespread strength. However, earnings have been good for the last month (when the reporting period for these stats ended), so gains may have been better lately.

(San Francisco)

Here is some good news for mutual fund investors. While many ETFs have been absolutely hammered by the selloff in FANG shares, many mutual funds have largely evaded the losses. According to Goldman, the average large cap mutual fund is underweight three out of four of the FANGs. Mutual fund managers had frequently grown uncomfortable with the FANGs’ soaring valuations, and as such, many had trimmed their exposure.

FINSUM:Some of the benefits of active management (and the downside of passives) are really exemplified in this data. A win for mutual fund investors.

(San Francisco)

Tech stocks have been through a rough patch, FAANGs especially. Facebook has been absolutely obliterated, while Netflix has had some steep falls. But is there still a bull case for the FAANGs? Barron’s says yes. Given Apple’s great numbers recently, the FAANGs have a little bit of momentum back. The core of the argument is dead simple—FANG stocks (leaving out Apple) are still growing at 35x the rate of the broader market, so it is hard not to see them rising. The article argues that the group is a generational trade that captures the growth of the internet.

FINSUM: When you get right down to it, the business models of the FANGs (lets leave Apple aside for a moment because it is a very different business) are very solid. We think investors will come around to that sooner rather than later.

(New York)

A lot of worries have been centered on the tech sector. While many are upset about the losses currently being felt, and even bigger fear is that tech might drag down the whole market. Well, Goldman Sachs says investors shouldn’t be too worried about that. The reason why is that while tech makes up a large part of the market’s current capitalization, earnings growth forecasts are much more broad-based, which will limit the fallout to the market as a whole. Goldman summarized their view this way, saying “From a fundamental perspective, narrow market leadership typically reflects narrow earnings strength, which is often a symptom of a weakening operating environment … Unlike past episodes of narrow market breadth, the earnings environment today appears healthy and broad-based”.

FINSUM: Goldman points out what should be a nice buffer, but we are more worried about the emotional, rather than rational, reaction of investors to falls in tech. That said, broad-based earnings strength is a good support.