Factors Driving FANG Still Intact, But Macro Backdrop More Mixed

Canaccord analyst, Michael Graham, took another look at the “overvalued” FANG stocks — Facebook Inc FB, Amazon.com, Inc. AMZN, Netflix, Inc. NFLX, Alphabet Inc GOOG GOOGL — and still sees potential upside among the group. 

Responding to the recent comments about another tech bubble, Graham said: “We have seen several theories attempting to explain this outperformance, including several centered on the rise of passive investing fueling momentum buying. We believe simply that these four stocks represent a large portion of the growth opportunities within large cap tech, and six months ago all the valuations were quite reasonable. We still largely believe in the growth, but the valuations are a bit less obvious.”

Canaccord maintains Buy ratings on the entire group besides Google, which was downgraded to hold.

Taking A Look At The Macro Backdrop

• The large market-cap technology sector still looks solid, but, in the short term, could be very volatile according to Graham.
• While the technology P/E multiple has gone up slightly (still well below the level it was at in 1999–2000), FANG stocks still represent the majority of growth opportunities among the bigger technology names, Graham noted.
• Four key growth drivers for the group include digital advertising, digital video consumption, e-commerce and cloud services. Graham believes these growth drivers are very visible and should be reassuring to investors.
• Graham continues to like the group’s fundamentals.

Overall, there are very few names in the technology industry with the ability to disrupt the market like the FANG group. “The FANG stocks continue to occupy much of the growth landscape within tech. As shown below, we found 21 large cap tech stocks with projected organic revenue growth in 2017 greater than 15 percent, and four of these are the FANGs,” said Graham.

Notable Updated Canaccord Ratings For The FANG Group

• Amazon: Maintains at Buy, raised price target from $1,150 to $1,200.
• Facebook: Maintains at Buy, price target stays at $175.
• Alphabet: Downgraded to Hold, price target remains at $1,000.
• Netflix: Maintains Buy rating, raised price from $165 to $175.

Related Links:

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