Facebook Inc, Amazon.com, Inc., Netflix, Inc. and Alphabet Inc: Red Flags Showing Up For Fang Stocks
John Rubino: Once every decade or so investor credulity reaches a point where even seasoned money managers buy into the notion of “one decision” stocks — that is, shares of companies so insanely great that they’re virtually guaranteed to keep going up. Valuation is irrelevant, as is the state of the economy.
Nothing matters but the unbeatable business model/technology/visionary leadership of such companies, so owning their stocks is as close to risk-free investing as it’s possible to get.
Back in the 1970s it was the “Nifty 50” (mostly American) multinationals that were taking over the world. In the late 1980s junk bonds, believe it or not, assumed this role (Institutional Investor magazine actually ran a cover story titled “The Unsinkable Junk Bond”).
In the late 1990s it was a handful of hot tech companies that made up for their lack of earnings with surging numbers of “eyeballs.” In the 2000s it was five or six big banks whose traders were, as CNBC liked to put it, “the smartest guys in the world.”
All of those delusions ended in tears. Yet here we are again, with a market supported by a few fast-growing tech companies that everyone now assumes to be bulletproof. Facebook Inc (NASDAQ:FB), Amazon.com, Inc. (NASDAQ:AMZN), Netflix, Inc. (NASDAQ:NFLX) and Alphabet Inc (NASDAQ:GOOGL), — known as the FANGs — along with Apple, have largely sustained an otherwise thin and declining Dow, S&P 500 and NASDAQ over the past year.
But now the FANGs are developing some cavities. Amazon, for instance, nearly tripled in 2015 from an already rich base. So it’s not a surprise to see it correct a bit in the new year. Still, 60 points is a pretty impressive drop.
One catalyst for the trend change is analysts beginning to tell clients to take some profits:
Amazon.Com, Inc. (AMZN) Shares Plunge On Downgrade And General Market Drop
(IR.net) – After shares of Amazon.com, Inc. (NASDAQ:AMZN) hit new 52-week highs to close off 2015, 2016 seems to be getting off to a rocky start for the company’s stock, along with the market in general. Shares of Amazon.com are down $14.89 or 2.2% following a downgrade by Monness Crespi & Hardt from a ‘buy’ rating to a ‘neutral’ rating.From a total of 26 analysts covering Amazon.com stock, 23 rate it a “Buy”, 0 a “Sell”, and 3 a “Hold”. This means that 88% of the ratings are positive.
There are at least two red flags here. One is that despite the overwhelmingly positive analyst consensus, a downgrade from a single boutique research shop can knock $20 billion from its market value. The second red flag is analyst opinion generally. Market historians should commission a study to see if any stock has ever risen when 88% of analysts rated it a buy and no one rated it a sell.
Meanwhile Apple, after passing Exxon and GE to become the most valuable stock ever, has been trending down for several months and lately has hit an air pocket on stalling iPhone sales.