Are You Ready For The 'FANGMAN'? — What To Know About The New Acronym On The Block

After the FANGs, FAANGs and MAGAs, another acronym taking the investment world by storm is FANGMAN. This acronym is used by traders to refer to stocks of seven of the biggest tech companies in the world.

The combined market capitalization of these stocks is about $7.9 trillion, which is roughly 25% of the total market capitalization of S&P 500 companies. To put things in perspective, the combined market cap of these seven stocks is more than the GDP of Japan, Germany or India, which are the third, fourth and fifth largest economies of the world, respectively.

The Constituents

The stocks in the FANGMAN group are:

• Facebook, Inc. Common Stock FB
• Amazon.com, Inc. AMZN
• Netflix Inc NFLX
• Alphabet Inc Class A GOOGL
• Microsoft Corporation MSFT
• Apple Inc AAPL and
• NVIDIA Corporation NVDA

Buoying S&P 500 Performance: 2020 was a year marred by the COVID-19 pandemic that led to economic contraction worldwide due to disruptions to businesses and other activities. The stock market, given its forward-looking approach, weathered the setback and ended the year with gains.

For instance, the S&P 500 Index ended 2020 at a record high and in the process generated a return of 16.2% for the year. The FANGMAN stocks played a big role int that as they outperformed the broader gauge:

• Facebook: 33%
• Amazon: 76.3%
• Netflix: 67.1%
• Alphabet: 30.9%
• Microsoft: 42.5%
• Apple: 82.3%
• Nvidia: 129.3%

Related Link: 10 Things Apple Investors May Wish For In 2021

FANGMAN, A Predictor of Stock Market Moves? Given the outsized weighting in different indices, it is logical to view FANGMAN stocks as a good predictor of which way the broader market is headed.

FANGMAN Invariably Outperforms Market: For those investors who are looking for above-market returns, or "high-alpha" stocks, FANGMAN could be the better bet. These stocks outperform the broader market, thanks to their transformational business models, high growth and financial might, among other things.

FANGMAN In Bubble Territory? From the perspective of topline growth, earnings potential and prospects, it is evident that the lofty valuations are justified. Higher P/E multiples of some of these stocks imply investors are willing to pay a premium to partake in their growth.

Investors see them as compelling, as they are most levered to the digital transformation that is picking up pace.

But the stretched valuations of these stocks could conjure up fears of a deep correction.

One of the biggest risks faced by these companies is regulatory scrutiny. Analysts see the changing of the guard at the White House as a slight negative for these high-flying names.

"To be blunt, it's a clear negative for Big Tech as ultimately with a Senate now likely controlled by Democrats we would expect much more scrutiny and sharper teeth around FAANG names, with potential (although still a low risk) legislative changes to current antitrust laws now on the table," Wedbush analyst Daniel Ives said in a Jan. 6 note.

That said, the analyst remains bullish on tech stocks for 2021, but sees the tech rally will be more tame until the Street gets a better sense of the legislative agenda under President Joe Biden.

Related Link: Why This Wedbush Analyst Expects A Year-End Tech Rally

Photo by Daisy Anderson from Pexels