Is it too late to buy the FAANG stocks, Facebook, Apple, Amazon, Netflix, Google, and Microsoft?
In a word, “no.”
But with their valuations peaking, concentration in them at all-time highs, and pushback from advertisers, regulators, and politicians mounting, an increasing cadre of skeptics and analysts think their run’s about over.
Let’s examine the bull case and bear case for these mega-cap tech darlings and why it’s not too late to buy them.
Most importantly, I’ll show you how to make money on them going up if you don’t own them, and why and how to buy them lower if they come down.
Bear Case Bashers Line Up
Check out the bear case on the FAANGs first:
When it comes to Big Tech, skeptics say they’ve simply risen too far, too fast.
Technical analysts are worried a pullback is coming soon, based on the NASDAQ-100, which holds all the mega-cap darlings, now being 19% above its 150-day moving average. They point to that “extreme level” usually being followed by a correction.
Amazon Inc. (NasdaqGS:AMZN) and Google’s parent company, Alphabet Inc. (NasdaqGS:GOOGL), face serious regulatory scrutiny for possible anti-competitive business practices in the U.S.
Netflix Inc. (NasdaqGS:NFLX) now must compete with hard-charging mega-rivals in streaming video, and at the same time, they’re piling on debt to produce original content.
European competition officials recently announced investigations into both Apple Inc. (NasdaqGS:AAPL)’s App Store and its payment platform, Apple Pay. It’s been rumored the U.S. Department of Justice has been investigating Apple over the same issues.
Facebook Inc. (NasdaqGS:FB) and Google have seen a sharp drop in advertising spending since the coronavirus pandemic began. At the same time, hard-charging broadcasters are lowering ad costs to attract advertisers rapidly paring back advertising budgets.
According to the Wall Street Journal, U.S. advertising spending is expected to fall by 13% this year. That’s dramatically lower than an expected rise of 4% in the 2020 forecast back in December.
Social media companies, most glaringly Facebook, outraged President Donald Trump into signing an executive order rolling back some media companies’ legal protections after accusing them of trying to silence conservative voices.
Verizon Communications Inc. (NYSE:VZ) just added its name to the growing list of advertisers pulling ads from Facebook, boycotting the company for not doing enough to halt hate speech on its platforms.
Facebook and Google also face intense scrutiny and criticism over lack of data privacy and security issues.
Underlying all those issues the FAANGs face, profits at the tech giants have fallen along with the rest of the market, according to Societe Generale’s Albert Edwards.
The Bull Stampede Case
Here’s where the bull case stands for tech darlings:
All the products and services Facebook, Apple, Amazon, Netflix, Google, and Microsoft Inc. (NasdaqGS:MSFT) offer, from cloud computing, to social networking, to online shopping, to hardware, software, apps, and ecosystems, have been in high demand by billions of consumers the world over.
Not only are they all brand leaders, but they mostly invented the products and services they sell.
That’s why they’ve exponentially grown their customer bases, their revenues, their profits, and their cash hordes. That’s why their stock prices have soared.
And, they’ve become more appealing since the coronavirus pandemic erupted.
The mega-cap tech darlings all benefited from higher demand for their products and services because of the pandemic.
As far as their stocks, the group are all now viewed as defensive plays, according to Kirk Hartman, president and global chief investment officer at Wells Fargo Asset Management.
Fund managers love the mega-tech stocks and keep buying them as they go higher.
That’s forcing portfolio managers not adequately exposed to their stellar performance to play catch-up by applying sidelined cash to them as they go higher, helping them reach new heights.
One little-known fact about one of the world’s most admired market icons, Warren Buffett, is his company’s holdings in Apple account for 43% of Berkshire Hathaway Inc. (NYSE:BRK.A)’s portfolio value.
The leading companies in big tech are also leading in trends like artificial intelligence, 5G wireless technology, and big-data analysis, which will continue to boost their profits and their stocks for years to come.
Winners Take All
So, no, it’s not too late to buy the FAANGs and Microsoft.
However, if you don’t want to pay up for them, but still want to make money on them going higher, you can sell put options on all of them.
By selling put options at strike prices 5%-10% below where they are trading, an investor would get to keep all the money they receive for selling puts if all the stocks keep going higher or stay where they are.
If the stocks fall, an investor who wants to buy all of them lower would get that opportunity if they fall at or below the strike prices of the puts you sell.
Since they’re all long-term, must-own stocks, forcing yourself to buy them lower and cheaper is a great way to commit to your financial future.
For good measure, because they’re all great stocks, I’d keep selling puts on them to keep collecting free money – or better yet, hopefully end up buying more shares in all of them at lower prices.
Sincerely,
— Shah
Source: Total Wealth