Spend any amount of time in the world of stocks, and you’ll hear talk of “FANG” stock. No, this has nothing to do with vampires. What are FANGs? FANG stock refers to the four (or sometimes five) major American technology companies. But are FANG stocks a wise choice for your investment portfolio?
FANG Stocks: Definition and Description
FANG is actually an acronym, with each letter representing one of the four top technology stocks in the United States.
What are the FANG stocks? FANG stocks consist of:
- Meta (META, formerly Facebook)
- Amazon (AMZN)
- Netflix (NFLX)
- Alphabet (GOOG)
In 2017, some analysts added “Apple” (AAPL) stock to the mix, resulting in FAANG stock, though it’s still common to hear the term “FANG stock” to refer to the big four companies mentioned above.
The term itself goes back to 2013, when Jim Cramer coined the term on his TV show Mad Money. Since then, FANG stock has been popular among investors who want to capitalize on these companies’ strong growth potential and wide public recognition.
What Are the FANG Stocks?
When it comes to stock, FANG and FAANG stocks tend to outperform many other major corporations. If you’re considering FANG investing, it helps to learn more about each company.
Meta (AKA Facebook)
The Meta corporation is best known for its social media platforms, Facebook and Instagram, as well as the messaging apps WhatsApp and Messenger.
Historically, Facebook has relied on ads displayed on its social media platforms to generate money. Industry experts have noted that while this has promoted strong growth in the past, ad rates have been steadily shrinking, partly due to a host of competitors.
But the future looks bright for the coming “metaverse,” a leader in Web3.0, which is a decentralized approach to the internet. As a leading innovator, Meta stands poised to reclaim its place as a leader among FANG stocks, meaning that investors stand to gain from this company.
Amazon (AMZN)
Since its humble beginning as an online bookseller, Amazon has almost single-handedly made online shopping a regular part of American life. While it has spawned its share of copycats, the eCommerce giant continues to outperform its competitors in virtually every category.
Part of this success comes from innovation. Sure, Amazon’s most explosive growth happened in the early part of the twenty-first century, but there are many things going for it. The arrival of Amazon Pharmacy will give consumers a way to compare prices on medications and get two-day delivery with their Prime membership.
This means that Amazon stockholders can’t exactly expect to see the kinds of massive growth that Amazon was once known for, but its continual willingness to innovate might make this a strong FANG stock to invest in.
Netflix (NFLX)
Netflix has been experiencing something of a shakeup in recent years. The company once dominated the TV and video streaming community, but lately, it faces strong competition from a host of platforms ranging from Hulu, Apple TV, and the family-oriented Disney+.
Unfortunately, Netflix’s lineup of original programming hasn’t been enough to attract or even retain memberships. As of 2022, Netflix began losing members for the first time in ten years. Again, with so many alternatives, Netflix simply isn’t offering the kind of content that’s keeping viewers glued to their sets — or their membership.
On the one hand, this might make Netflix a value stock for some. You might take advantage of a dip in stock price to snatch up shares of this stock. However, the return on your investment depends entirely on whether Netflix can turn things around in the near future, lest it lose even more ground to an increasingly-crowded digital marketplace.
Alphabet (GOOG)
Chances are that you relied on a Google search just to find this article. Google has very much become a part of our digital lives and will likely remain that way for some time.
Besides its popular search engine and Chrome browser, the Alphabet company has also made headway with the Chromebook personal computer as well as the popular Google Nest, which rivals the Amazon Alexa smart speaker. The company is also behind the navigation app Waze and the ever-popular YouTube streaming platform.
Alphabet’s products and services have very much become household names, but like Meta/Facebook, the company relies at least partly on digital advertising to contribute to its revenue. This means that the future of this tech giant may depend on how much impact digital advertising is expected to have in the near future.
Advantages of FANG Investing
What is FANG investing’s greatest advantage? That depends on who you ask, and when. It’s tempting to think about the “what if” question, as in: “What if I’d bought FANG stock when these companies were in their infancy?”
There’s no question that FANG stocks have demonstrated strong, often explosive growth. The question is whether FANGs investment is worth it for your portfolio.
Here are the top advantages of FANG stock:
Stabilizing Your Portfolio
First, you get a lot of stability with a FANG stock, meaning the share price isn’t likely to swing wildly with increased market volatility. This means that you can use these investments to stabilize your portfolio. For example, if you invest in a risky startup company, you can offset this investment with one of these reliable FANG stocks.
Long-Term Growth
Granted, FANG stocks are not expected to produce massive financial shifts in the coming years, but that doesn’t mean these companies are shrinking. On the contrary, the reason these performers receive so much attention is that they bring steady, reliable growth to investors’ portfolios.
If your goal is long-term financial growth, then these FANG stocks may be right for you.
Innovation and Future Gains
These companies owe their success to their reputation for innovation. While imitators abound, FANG companies continue to strategize for the future, which means that the growth potential has hardly been exhausted.
You may not have gotten in on the “ground floor” with Amazon, but you now have the opportunity to grab some shares and enjoy the gains that come with future innovation.
Disadvantages of FANG Investing
FANG stocks, of course, have their drawbacks. Here are a few of the main disadvantages of FANG stocks.
Limited Growth Potential
According to some industry analysts, online advertising in the U.S. is expected to grow by 12.5% annually between now and 2025. This estimate is down from the previous number of 18.5%.
This means that investors will see limited growth potential for the foreseeable future, and these companies won’t deliver the rapid return that you might associate with newer startups.
No Dividends
Many larger corporations pay their investors dividends, allowing you to earn some passive income from your portfolio. While Meta has toyed with the idea in the past, none of the four major FANG companies offer dividends.
Limited Diversification
If you have no other tech stocks in your portfolio, then FANG stock may add some diversity. But you’ll find no real diversity between these companies. This can be risky, since a major drop in the tech sector could negatively impact your investments.
Find the Stocks that Fit Your Goals
Ultimately, you need to find the stocks that fit your investment goals. If your goal is slow, steady, long-term growth, then these FANG stocks may be a valuable addition to your portfolio. Otherwise, you may be better off seeking out newer startups and growth stocks that have a greater chance of massive gains.
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