FAANG stocks, an acronym for some of the top US listed stocks such as Facebook (no Meta), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Google (now Alphabet) have been a hot favourite of both retail and institutional investors. While almost each one of them touched their lifetime highs in 2021, most of them saw their stock prices fall like nine pins in 2022. So, is it the right time to buy FAANG stocks now? Let’s delve deeper into it.
As US Fed ended the low rate regime and started raising rates to tame inflation, there was no reason for the traders and investors to hold FAANG stocks at high valuations. Stock prices tanked as the high-interest rates scenario also started to look ominous for the economy.
Today, the situation could be different. Many market experts are of the view that FAANG stock prices have fallen a lot and have settled at reasonable valuations. With the dollar losing its strength and FAANG companies announcing not so gloomy outlook, there could still be hope for FAANG companies.
Jawahar Vadivelu, Chairman, Tradeplus says, “In the recent bear market, there are still excellent buying opportunities for investors who can keep a long-term perspective. One such opportunity may be investing in the FAANG stocks, which have been popular investments for over a decade due to their dominant positions in their respective industries.”
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FAANG companies are clear leaders in their respective sectors and a dip in their current earnings need not be construed as a sign of weakness over the long term. “These companies have clear-cut competitive advantages that have made them industry leaders, such as Meta’s ownership of popular social media sites and Amazon’s dominance in US online retail sales,” says Vadivelu.
Stock picking will become more important in today’s bear market environment and buying shares blindly may be financially damaging. “Within the FAANG stocks, there are varying levels of long-term upside potential. For instance, despite sharp drops in share prices from all-time highs, both Amazon and Netflix are still poised for future success due to their robust business models. This presents a once-in-a-decade buying opportunity for investors,” informs Vadivelu.
A key factor going in favour of tech companies is the weakening of the dollar. “The weakening dollar could be a catalyst for a rebound in big tech stocks like the FAANGs. These companies have been trading at relatively low valuations compared to recent years, and a weaker dollar, especially if it coincides with a strong earnings report, could give investors the confidence to buy back into these stocks,” says Vadivelu.
A weaker dollar may also help the global economy, which would benefit these multinational corporations. Investors may be hesitant to invest in these stocks given recent market volatility and uncertainty, but a weakening dollar could provide the necessary push to propel them higher. “For U.S. Companies, a strong dollar hits their foreign profits when moved back into dollars, putting corporate earnings under pressure,” says Nigel Green, CEO, deVere Group, one of the world’s largest independent financial advisory, asset management and fintech organisations.
Investors are now preparing to profit as the US dollar’s era of strength comes to an end. If the dollar continues to fall, FAANG stocks may continue to rise.
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