They did it again. They buried FAANG. They did it. I am not kidding. And this time they did it for a motley crew of Freeport-McMoRan (FCX) , Cleveland-Cliffs (CLF) and a bunch of other resource companies.
Now, I understand that we had a tech wreck Tuesday, that a lot of the FAANG and FAANG-like companies have been clobbered.
Yes, only Facebook (FB) and Alphabet (GOOGL) , formerly Google, have really done anything this year, rallying 15% and 32% respectively. Netflix (NFLX) , after that weak quarter, is off 7.5%. Amazon (AMZN) , which absolutely crushed the numbers, is up less than 1% and Apple (AAPL) ? After an amazing quarter, it’s down 2%. That’s pretty pathetic.
Meanwhile, the stock of Freeport, our largest copper company, has rallied 60%. Cleveland-Cliffs, the new steel colossus, is up 41% and Nucor (NUE) , our favorite, has soared 74%. They have left FAANG in the dust.
So is FAANG done? Let me give you five reasons why deserting FAANG now is a huge mistake.
First, there is no real FAANG. It was just an acronym I came up with to make it easy to talk about a group of unbelievable stocks with fabulous prospects. I think they still have those prospects. The acronym should have included an M for Microsoft (MSFT) , up 11% for the year, but it wasn’t alliterative. Consider it an amalgamation of individual entities that at various points trade together. That’s obvious. This is the year to own Facebook and Google. Others years, some of the others have done well. Over all, they have been spectacular.
Second, right now we are experiencing an unprecedented boom in the country, the likes of which are pretty unimaginable for what has been a slow growing developed economy. We’ve got incredibly low interest rates, a Fed that is printing money, and the equivalent of a chicken in every pot and a car in every garage, except the millions of people who are unemployed that Fed Chief Powell and President Joe Biden are hoping to help. This is a once in a lifetime boom. You don’t even want to know how you would have done if you had stayed in those stocks for the duration. But I can tell you how you would have done in the FAANGs over the last 5- and 10-year period: Facebook, 168% and 727%; Apple, 452% and 940%; Amazon 397% and $1563%; Netflix, 460% and 1,420%; and Alphabet; 238% and 324. Let’s throw in Microsoft, 395% an 858%. Meanwhile, the S&P 500 was up 104% and 213%, and the Dow Jones was up 94% and 173%, respectively.
If you want to judge by this year, you could easily say that the only one you should have been in is Alphabet and yet that’s the worst performer of the entire group. Should we just throw the rest away and buy Alphabet to keep up with Cleveland-Cliffs and Freeport? I don’t think so.
Three, boom times don’t last. They never do. Eventually, the Fed puts a halt to a boom that’s inflationary, because its dual mandate includes not allowing for a runaway, red hot economy that creates an environment where savings are eroded and purchasing power is destroyed. It’s a dueling dual mandate and at some point raising rates could be necessary. Not now, but at some point. And when it does, the economy slows down, usually dramatically, and the stocks that shine when that happens? FAANG plus Microsoft. It’s a fact of life. Go look at how these stocks have done during the recessions of our time. They are spectacular performers.
Fourth, you may think they are has-beens. You may think they are no Teslas (TLSA) . I get that. Tesla’s incredible Elon Musk is incredible. But does the company make a lot of money? No. Is there a huge organization of great people under Musk? Who knows? The FAANGS are built to last. They have huge benches. They are truly built to last. They are not sensitive to the consumers’ whims. They are not sensitive to their balance sheets, they all, including Netflix, have a huge war chests. They can reinvent themselves.
Fifth, they do reinvent themselves. Facebook bought Instagram and is cleaning up with it. Now it is working with consumer packaged goods and small- and medium-sized business as partners. Facebook has many other services that it hasn’t even begun to monetize. Amazon was a book seller. Then it was a goods seller. Then it was a web services company. Now it’s an advertising play with a machine called Alexa, who responds to pretty much every intellectual whim. It never stops. Apple? It used to be Apple computer. Then it was the cellphone. Then it was accessories. Now it is services and that revenue stream came out of nowhere. Netflix was a diskette company. Then a streaming company. Now a content company. Alphabet was search, then YouTube and ads and now Google Cloud. Let’s throw in Microsoft, which is computer software, then Xbox, then LinkedIn and now Azure.
Freeport? Copper and Gold. Still copper and gold. Cleveland-Cliffs, iron ore and now steel. Nucor? Steel. All at one point have been threatened by recessions and foreign competition on an unlevel playing field. Cleveland-Cliffs and Freeport have, at times had to go hat in hand for money to survive. Survival for FAANG? Not an issue. Most are richer than the U.S. government.
I think periodically it’s just the way of journalism to make a sweeping judgment that it is time to depart from them. I have battled this trend, particularly with the stock of Apple for years and years. I haven’t done it as vociferously with the others but that’s my bad.
Now you could argue I am cherry picking here and that there are plenty of other companies I could have said will be around for a long time that could crush FAANG. But, time and again, the industrials or the oils or the financials or the rails or the airlines or even most health care companies have run into trouble with the government or the business cycle or foreign destruction.
And you know why that is? I will tell you the real secret of why I like FAANG so much. I am a giant believer in youth, the value of youth, the love of youth and the acumen of youth. You have young smart people on your side, you are going to win. We have 20 million new investors that have joined us in the last few years. Do you know where the best and the brightest want to work? FAANG. If you are older and have kids, you overtly or secretly want your kids to work at FAANG. When I graduated from school with real good grades, I knew where I was headed: Wall Street. That’s where the best and brightest went. But, then again, Stanford was the backup school back then, to date myself.
As much as I may like the steels or the aluminiums or the coppers or even the garden-variety industrials, they are not going to see the resumes that FAANG has. You are not going to have to pull every string in the world to get a job there and fail, anyway. I would like to think that I could get someone a job at pretty much everywhere, except for six companies where I have no hope and no pull, because no one else does, either. They are our universities that reject all but a handful of people. That’s their real strength. That’s why I love them and that’s why I have a fondness for their stocks over all others. In the end, barring percentages, is there a better way to judge?
Get an email alert each time I write an article for Real Money. Click the ” Follow” next to my byline to this article.