FAANG Pullback Inevitable in 2018?

Carla Olson | 8:09 am ET, 02 Jan 2018

FAANG

As you're entering 2018, you may be wondering which stocks that you own in your portfolio are bound for a 'correction' in 2018.  

The scale of the FAANG rally in 2017  has led some investors to believe that this group has been overdone as an investing theme, especially given signs of overvaluation. 

Facebook, Amazon, and Netflix were up more than 50% over the last 12 months; Apple's gain was over 50%, and Google 'trailed behind' with 30%+ annual stock price growth.

And the FAANG stocks weren’t just market leaders this year; they accounted for a sizable portion of Wall Street’s overall move higher. 

How do the analysts feel about these stocks?  Morgan Stanley said it is still positive on the group, but macro factors could be concerning.  History indicates that returns may moderate their pace and Morgan Stanley analysts question whether growth can be sustained in the upcoming period.  

Apple investors should be especially worried about the $1,000 price tag on the iPhone X that may cut into first-quarter demand.

The group may be less well-insulated from cyclical pressures that many investors anticipate will increase over the next couple of years.  These stocks are tied to the cycle via advertising and consumer spending.

Here is a look-back on Facebook and Amazon stock performance.  Over the last year, FB returned +52.54%. This return is higher than Internet Information Providers sector (42.56%), Technology industry (26.77%), S&P 500 (18.87%) returns.

Over the last year, AMZN returned +52.98%. This return is higher than Catalog & Mail Order Houses sector (20.39%), Services industry (4.74%), S&P 500 (18.87%) returns.

Disclaimer: The news article above expresses the author’s opinion about the topic of the article. We strongly advise you not to base your investment decisions just on this article alone. If you’d like to become a writer for Finstead Bites, please send us an email at hi@finstead.com.


Apple Inc. (AAPL) Buy or Sell Stock Guide

Updated at: 1:48 am ET, 24 Dec 2018

The analysis below may be helpful to you if you have any of the following questions about AAPL stock:

  • Is AAPL a buy or a sell?
  • Should I sell or hold AAPL stock today?
  • Is AAPL a good buy / a good investment?
  • What are AAPL analyst opinions, recommendations, ratings?

Here are AAPL stock buy reasons/signals:

1. Between first-time smartphone buyers, users switching from Android, and repeat sales to current customers, Apple has plenty of opportunity to reap the rewards of its iPhone business.

2. Apple's iPhone and iOS operating system have consistently been rated at the head of the pack in terms of customer loyalty, engagement and security, which bodes well for long-term customer retention.

3. We think Apple is still innovating with introductions of Apple Pay, Apple Watch, Apple TV, and AirPods, each of which could drive incremental revenue but, more important, help to retain iPhone users over time.

4. Although demand for Apple's mega edition – iPhone X – has been less satisfactory, the device plays an important role in expanding the iOS ecosystem. The device also plays a crucial part in Apple’s expansion strategy in emerging markets (India and China in particular).

5. Apple has been taking a lot of initiatives to boost its presence in India. The country presents an attractive growth opportunity for the company over the long run given its younger population and increasing investment in 4G networks infrastructure. Apple has partnered with a telecom company Reliance, which will be providing an all-IP network service for free to its iPhone customers.

6. China remains an important market for Apple, given the growing number of middle-class customers. Though the last few quarters have been marked by sluggish growth, the company remains optimistic about the long-term growth prospects of the region, especially given the hype surrounding iPhone X. Moreover, the company is setting up a new research and development (R&D) center at the Shenzhen manufacturing hub in China and it also appears to have secured a seat on Didi Chuxing's board.

7. Apple Pay, designed on the basis of a contactless payment technology has been expanded to 20 markets that include Denmark, Finland, Sweden and the UAE, Italy, the UK, Australia, Canada, China, Hong Kong, Switzerland, Japan, Russia, New Zealand, Spain Ireland, and Taiwan. Apple Pay adoption jumped 50% among merchants last year, while the global purchase volume more than tripled during the same period.

8. Apple is one of the leading players in the wearables market. Apple’s WatchOS features the ability to integrate with Apple Music and has a Siri-integrated interface, along with fitness oriented tech program, GymKit. Furthermore, Apple has also been making some important developments for its voice assistant, Siri, which will now be integrated with iOS 11 with a more natural sounding voice and translation capabilities.

9. Apple is preparing to enter the automobile market as well. In June 2017 the company confirmed that it was working on a self-driving car technology AI project. In this regard, we are optimistic about the company’s $1 billion investment in Didi Chuxing.

10. With so much buzz created by AR/VR and AI technologies, Apple has also started to focus on the development of these technologies. These are fast emerging as lucrative business opportunities. According to a recent IDC report, global revenues of the AR/VR market will witness a CAGR of 198% over a period from 2015 to 2020 and will reach $143.3 billion by 2020.

11. AAPL stock price ($150.73) is at the 52-week low. Perhaps now is a good time to buy?

12. AAPL quarterly revenue growth was 19.60%, higher than the industry and sector average revenue growth (2.18% and 5.25%, respectively).

13. AAPL profitability is improving. The YoY profit margin change was 1.32pp.

14. AAPL forward dividend yield is 1.73%, higher than the industry (0.37%) and sector (0.86%) forward dividend yields.

15. AAPL forward P/E ratio is 11.27, and it’s low compared to its industry peers’ P/E ratios.

16. AAPL average analyst rating is Buy.

17. AAPL average analyst price target ($230.21) is above its current price ($150.73).

Here are AAPL stock sell reasons/signals:

1. Apple’s recent decisions to maintain a premium pricing strategy may help fend off gross margin compression but could limit unit sales growth as devices may be unaffordable for many emerging-market customers.

2. If Apple were to ever launch a buggy software update or subpar services like Apple Maps, it could diminish the firm's reputation for building products that "just work."

3. Future U.S. immigration and trade policy could have negative ramifications for Apple, which has significant overseas operations and manufacturing partnerships.

4. Apple faces significant competition in most of its operating markets. In the desktop and portable computer segment, Apple faces intense competition from the market leader Hewlett-Packard and the likes of Lenovo, Dell, Acer, and Asus. The smartphone segment is chock-a-block with attractive devices from Samsung, Xiaomi, Google, Oppo and other small and big players that are intensifying competition aganst Apple.

5. Apple is entangled in various legal battles over its mobile and tablet products. In the beginning of 2017, Apple and Qualcomm saw a major fallout related to licensing royalty payments. Apple has filed a $1 billion lawsuit against Qualcomm, accusing it of overcharging for chips and refusing to pay around $1 billion in promised rebates.

6. Apple is facing increasing regulatory hassles in Europe. The company is likely to be impacted by the uncertainties surrounding Brexit as it will have to re-define everything from tax to data flow and privacy regulations for its operation in the UK. Moreover, the company has its European headquarters in Ireland, through which it received certain tax benefits.

What are your thoughts on AAPL?

If you liked this analysis, check out Buy or Sell Stock Guides for other stocks.

Disclaimer: The news article above expresses the author’s opinion about the topic of the article. We strongly advise you not to base your investment decisions just on this article alone. If you’d like to become a writer for Finstead Bites, please send us an email at hi@finstead.com.


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