If you tend to keep up with the tech or finance ecosystem, you've probably come across the term, FAANG. But have you ever wondered what it stands for? Or why was it coined in the first place?
We'll dive into what exactly they constitute and what makes them so popular.
What are the FAANG Stocks
FAANG stocks are the stocks of the five most valuable Big tech companies in the US: Facebook (now Meta), Amazon, Apple, Netflix, and Google (subsidiary of Alphabet). These companies have been responsible for much of the growth in the US stock market over the past decade, and their stocks are widely held by investors.
These stocks have fared better than their counterparts in economic downturns. Part of the reason is that they have a stronghold on the utilities powered by the tech industry hence the alternative term, the big-tech.
Consequently, all of them are part of the S&P 500 Index, which includes the top 500 publicly-traded companies, in terms of their market cap, listed on NYSE or NASDAQ.
1. Facebook (Now Meta):
Facebook is a leading social media platform that has been able to maintain its position as one of the most popular social networks in the world. It has been able to withstand economic downturns due to its strong user base, advertising revenue, and expanding product offerings.
Facebook went public on May 18, 2012 on the NASDAQ stock exchange. Since then, its stock has gained more than 415% from its IPO price of $38, while the S&P 500 index SPX, +2.57% has gained 284.2%.
Apple is a computing multinational technology company that designs, develops, and sells consumer electronics, computer software, and online services. It is one of the most valuable companies in the world, known for its top end security (end-to-end encryption) and user friendly model. It has been able to maintain its position even during economic downturns.
Apple went public on December 12, 1980 at $22.00 per share. Apple’s stock has split five times since the company went public. The stock split on a 4-for-1 basis on August 28, 2020, a 7-for-1 basis on June 9, 2014, and split on a 2-for-1 basis on February 28, 2005, June 21, 2000, and June 16, 1987.
Amazon is one of the world’s largest online retailers and a leader in cloud computing services. Its e-commerce business has held up well during recessions due to its focus on low prices and convenience. In addition, its cloud computing services are essential for many businesses, giving it a steady source of income regardless of economic conditions.
Amazon went public on May 15, 1997 at $18 per share. Since then, its stock has gained more than 5400%, while the S&P 500 index SPX, +2.57% has gained 284.2%. The company has split its stock 4 times since it went public.
Three times during the 90s: a 3-for-1 split on January 5th 1999; a 2-for-1 split on September 2nd 1998; and a 3-for-1 split on January 2nd 1999. And, the most recent split was a 20-for-1 split in March, 2022.
Netflix is an American streaming media and entertainment company. Founded in 1997, Netflix has become one of the world's leading streaming services, offering a wide variety of movies, TV shows, documentaries, and other content.
Netflix went public on May 23rd 2002 at $15 per share. Since then its stock has gained more than 4500%. The company has split its stock seven times since it went public: a 7-for-1 split on July 15th 2015; a 2-for-1 split on July 12th 2004; a 3-for-2 split on April 14th 2003; a 2-for-1 split on February 11th 2003; and three 3-for-2 splits on December 16th 2002, October 15th 2002 and August 5th 2002.
5. Alphabet (Previously Google):
Alphabet (formerly known as Google) is a leading provider of internet search services and digital advertising solutions. It has also developed many other products such as Google Maps, YouTube, Chrome web browser, and Android mobile operating system. Additionally, its cloud computing services are an important resource for businesses looking to reduce costs and improve efficiency.
Alphabet went public on August 19, 2004 at an initial public offering (IPO) price of $85 per share. Since then its stock has gained more than 1600%. The company has split its stock two times since it went public: a 2-for-1 split on April 2nd 2014 and a 7-for-1 split on April 3rd 2014.
How did FAANG originate?
The FAANG stocks - Facebook, Apple, Amazon, Netflix, and Google - are some of the most widely known companies in the world. This group of tech giants has become an integral part of the S&P 500 and the entire stock market, and it's easy to see why.
But where did the term "FAANG" come from? Surprisingly, the term was coined by Jim Cramer of MSNBC. He chose the acronym FANG as a shorthand for the four companies. Investors then added Apple to the list to form the acronym FAANG.
Jim Cramer certainly popularized the term, he himself credits Bob Lang, a Real Money and The Street colleague of Cramer's, with identifying these four stocks and inventing the acronym.
Since then, the term has become the industry standard for referring to the group of stocks. It's no surprise why FAANG has been so successful in the stock market - these five companies are some of the biggest and most powerful in the world.
How to Invest in FAANG Stocks?
When a company is announced publicly, it will appear on the index and seek investment, and the company data and its performance is accessible to the public for them to study and invest for good returns either long or short term. An individual can then buy a share of that company in the form of stocks.
Ways to invest include:
1. Individual Stocks
One can choose to individually buy separate stocks of each of the FAANG companies by creating an online brokerage account (Demat). This method gives one more control and allows one to customize your portfolio according to your risk tolerance, goals, and preferences. Direct investment of Individual stocks can be made from any country. One has to follow the market on a regular basis and should have a basic understanding of the trading platform to know the best time to buy and sell individual stocks.
2. Index Funds (S&P 500 Index)
Index funds provide investors with exposure to FAANG stocks, among others.
The S&P 500 index includes all five of the FAANG stocks and is a great way to gain exposure to the entire group.
Best single gauge of large-cap U.S. equities can also execute options and futures.
3. Tech Funds:
Investing in a tech fund is one of the easiest ways to invest in FAANG stocks. Tech funds are mutual funds that specialize their investments in the technology sector and track the performance of many companies including FAANG stocks. Tech baskets are a package of well-performing tech stocks listed together in a category with the company name, current price, and weightage(%), stating a minimum investment value. When the tech basket is purchased with a min amount or above, it buys stocks in bulk and distributes the no. of shares for each company based on the weightage (%).
4. Mutual Funds:
Mutual funds involve investing in a professionally managed portfolio that includes investments in the five FAANG companies. The portfolios are systematically automatically, where the stocks are purchased and sold automatically,
Mutual funds are similar to ETFs in that they also track an index, but they are actively managed by professional money managers who buy and sell securities on behalf of the fund’s shareholders.
5. Stock Broker:
Stock brokers are people who are up-to-date/specialized with the market performance, who will help you access the market, research stocks with detailed information, and provide inputs. They manage your portfolio with flexibility according to choice and preferences. They follow the market. For those who have less knowledge/no time investments via stock brokers are still a well-grounded option.
6. ETF (Exchange-Traded Funds):
ETFs are a type of security that tracks an index, a commodity, bonds, or a basket of assets like an index fund but trades like a stock on an exchange. ETFs, provide investors with exposure to FAANG stocks without having to buy each stock individually.
Most important of all, they provide a long-term outlook and are a good way to add a targeted investment in big tech without scouring the NASDAQ 100.
Analyze & Pick the Right Stocks
Blindly investing in a company may not get you profits in the long run. You should analyze each company and pick the stocks that are right for your portfolio.
- Research: Start by researching the companies that you want to invest in. Learn about their products, services, financials, and other news that is relevant to the stock market.
- Analyze: Use different metrics such as P/E ratio and price-to-book ratio to analyze the stock's performance over time. Also, look at the company’s debt-to-equity ratio to see how much leverage they have on their balance sheet.
- Set Goals: Set your investment goals, decide what kind of returns you want from your investments and set a timeline for achieving them.
- Diversify: Don’t put all your eggs in one basket by investing all your money in one stock or sector; diversify your investments across multiple stocks and sectors to reduce risk and maximize returns.
- Monitor & Adjust: Monitor the performance of your portfolio regularly and adjust it if needed to stay on track with your goals or take advantage of opportunities in the market as they arise.
To track the performance-related movement of a company to see how the company works, one factor is the number of employees being laid off. A streamlined way to do all of this is by starting with rich and fresh data on companies.
Data is at the core, especially when analyzing stocks and company data. Working with fresh data ultimately results in more informed decisions translating into market gains.
Frequently asked questions (FAQs):
Why is Microsoft not in FAANG
FAANG was originally a stock market term to describe new and hot tech stocks at the time. Microsoft already had steady success and this meant the stock wasn't as volatile to product launches and other factors as other stocks, thus it was not included in the FAANG acronym.
Are FAANG companies a good investment?
Some investors are bullish on the FAANG companies, believing that they will remain strong and continue to grow in the future. Other investors might not be as optimistic, and view them as overvalued and due for a correction.
Either way, they seem to have fared better than others and while there's no binary answer to the question, most reliable sources would definitely consider this a good investment.