A term coined by Jim Cramer, the host of CNBC’s Mad Money, FANG is an acronym. It represents four of the best-performing technology stocks on the market: Facebook, Amazon, Netflix, and Google. Some investment experts also include Apple in the mix, adjusting the term to FAANG.
While Google now operates under Alphabet, Inc., a change made in 2015, the term FANG stuck around. It is easy to remember, and the companies it represents are highly recognizable. Plus, all of these stocks continued to perform over the years, allowing the term to stay relevant and join the common investing lexicon.
Whether you were aware of FANG as a concept before, you likely are aware of the stocks it represents. However, you may not know how powerful investing in FANG stocks can be if you are willing to buy and hold.
The Earning Potential of FANG Stocks
While no stock is a guaranteed safe bet, FANG stocks, by and large, have outperformed the overall S&P 500 and NASDAQ 100 Index. Since technology has become an increasingly important part of everyday life, and these companies tend to be innovators in the tech space, their products and services have led to strong performances.
One analysis showed that, if a person invested approximately $3,250 over the course of the summer of 2014, in a single FANG stock, by 2017, the investment would have been worth the following:
- Facebook (FB) – $23,189
- Amazon (AMZN) – $39,148
- Netflix (NFLX) – $45,317
- Google/Alphabet (GOOG) – $20,176
While the total investment represents an incredibly small stake in each company, the gains are significant.
It’s important to note that past performance does not guarantee future growth. For example, Yahoo had substantial gains in the late 1990s, after going public in 1996, but was damaged in the dotcom crash. Since then the company’s value fluctuated, at times dramatically, and never surpassed its 1999 peak.
However, the numbers above are a prime example of how investing in the right companies, even on a modest level, can be especially effective when it comes to reaching your financial goals.
The Tech Stock Landscape in 2018
Over the course of 2018, the tech industry has seen it’s fair share of challenges and even scandals. The Facebook / Cambridge Analytica scandal rocked the social media giant, and questions about the companies decisions in relation to the 2016 Presidential Election further harmed the company.
In July, Facebook lost approximately $120 billion in market capitalization in a single day. The stock closed with a loss of 19 percent. However, many financial experts believe that Facebook will recover. The company has experienced significant losses only to bounce back. It’s positioned as the leading social media platform. This provides it with some longevity, giving Facebook a chance to ride out the storm.
On August 2, Apple hit a value of $1 trillion, marking a major milestone in the market by being the first publicly traded US company to do so. Over the course of 2018 alone, the company had gains of 22 percent.
Amazon is likely not far behind Apple. The online retailer crossed $900 billion in July, a feat Apple achieved in November 2017. With Amazon making key acquisitions, including Whole Foods, and continuing to dominate the retail landscape, the potential certainly exists for the company to do the same.
Some financial experts actually believe that Google/Alphabet Inc. is undervalued at this time. They are making significant strides in artificial intelligence (AI). Plus, the Waymo driverless car is making headlines for its possible impact on the vehicle industry.
Is There a FANG Stock Bubble?
While FANG stocks largely experience positive returns, especially over the long-term, some financial analysts believe it’s a bubble; one that could burst at any time.
FANG stocks have high valuations coupled with low volatility, even with some of the recent scandals. Some liken the astounding growth to the dotcom bubble in the 1990s. This leads a portion of the experts to wonder if a crash is imminent.
However, other financial analysts disagree. They believe the growth is sustainable, especially if they continue to innovate in the tech space. Advances like AI and machine learning could bolster future gains. Additionally, new tech discoveries occur regularly, and hardware improvements can also increase a company’s value.
Should You Invest in FANG Stocks?
Often, the biggest question on investors’ minds is whether they should invest in FANG stocks. While no investment is a safe bet, FANG stocks still have a lot of potential.
When a big-name company like Facebook experiences a significant loss in value, this could represent a buying opportunity. However, that is only the case if the company has the ability to recover.
If you choose to take advantage of a low point, educate yourself about the FANG stock. Monitor their earnings statements, look for details about emerging products and services, and keep an eye on legislation that could impact their operations.
Further, if you choose to invest in FANG stocks, it’s still important to diversify your portfolio. Select investments in a range of industries and companies as this lowers your overall risk.
Explore Other Sectors
You may want to explore energy, financial, health care, pharmaceuticals, or even marijuana stocks. Similarly, there are numerous other tech stocks on the market today.
For example, Microsoft has a market cap over $800 billion, but they aren’t in the FANG stocks group. If you want to invest in tech, examine other companies that may experience gains.
While FANG stocks could continue to experience gains, other industries may also have explosive growth. This can make exploring the entire market beneficial. This gives you a chance to find the next company that may skyrocket into a household name.
It’s always important to avoid fixating on a particular niche. This can harm your diversification goals. Plus, overly focusing can lead you to miss out on a stellar investment opportunity in another sector. Which could end up hurting your cumulative gains.
Ultimately FANG stocks still have a significant amount of potential. However, no company is completely bulletproof. Stay informed about your investments and look to a range of industries and companies if you want to make sure that a single stock’s decline doesn’t completely derail your financial future.
Do you invest in FANG stocks? Tell us why in the comments below.
Looking for more great investment articles? Here are a few to get you started:
- Great Marijuana Stocks to Invest in Now
- The Pros and Cons of Investing in Stocks
- Trading Stocks: What to Know Before You Jump in
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