The biggest companies are frequently market drivers, but they’ve changed over time. Twenty years ago, the five largest public companies by market capitalization were General Electric (GE), Exxon Mobil (XOM), Microsoft (MSFT), Pfizer (PFE) and Citigroup (C). Today, only one of those companies (Microsoft) cracks the list. And none are likely to be among the next FAANG stocks.
Ten years ago, Microsoft and Exxon were still there, along with hard-charging Apple (AAPL), Berkshire Hathaway (BRK-B) and Google (GOOG). Today, Apple, Google and Microsoft remain, but the other two aren’t among the top seven most valuable companies in the world (Exxon is 15th … and falling).
Today, the term FAANG stocks (referring to Meta Platforms (META) (formerly Facebook, hence the “F”), Amazon (AMZN), Apple, Netflix (NFLX), Google (GOOG)) has been essentially replaced by the term “Magnificent Seven”, as three other mega-cap tech stocks – Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA) – have combined with the FAANGs (while kicking out Netflix) to influence market movement like never before; they account for a whopping 31% of the S&P 500, and last year those seven stocks were responsible for more than half the 24.2% gain in the S&P 500. This year, the Mag. 7’s influence has arguably expanded, with the S&P up 17.7% year to date as of this writing, while the Equal Weight S&P 500 index – which weighs each of the 500 stocks in the S&P equally – is up a more pedestrian 6.3%.
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Market terms evolve, and so do market trends. Just like yesterday’s FAANG stocks have morphed into today’s Magnificent Seven, the seven stocks that are dominating the market now may be mostly, if not entirely, replaced by a new group of heavily influential mega-cap goliaths 10, 15, 20 years from now.
But which stocks could they be?
There are lots of potential new leaders emerging, especially in the AI realm. But those are short-term trends. The next group of true market movers will run up for years.
How will the world change in the next decade? Or, even more mind-bendingly, in the next 20 years? No one knows. But we can make some educated guesses as to what companies appear to be well-positioned for the coming changes.
Here are three leading candidates to be among the new FAANG stocks (or the new Magnificent Seven).
3 Candidates to be the Next FAANG Stocks
BYD Inc. (BYDDY): Wish you’d invested in Tesla (TSLA) 10 years ago? Here’s your second chance! BYD, short for “Build Your Dreams,” is fast becoming the Tesla of China after going all in on electric vehicles two years ago. The switch immediately bore fruit, as revenues tripled in 2022, and it’s still paying off: BYD sold 426,039 vehicles in the second quarter, up 21% from a year ago, and the company is working on a $1 billion EV and battery production facility in India to keep up with demand as it attempts to become a global brand. The stock, meanwhile, is playing catch-up to the company’s transformation from a China-centric car company to a worldwide EV powerhouse that has sold more cars than Tesla in recent quarters: Shares are up a modest 14.6% in the last year, but up 424% in the last five, and trading at a mere 21 times forward earnings – less than a quarter of TSLA’s valuation (forward P/E of 97), with better growth ahead.
Eli Lilly (LLY): The U.S. population is aging at warp speed. More than a third of the population is over age 50. The fastest-growing segment of the population is 65 and older, as an average of 10,000 baby boomers turn 65 every single day and will continue to do so for many years to come. It’s also a similar situation in many major countries around the world.
That’s where Eli Lilly comes in. Lilly is a mega-cap ($852 billion market cap) pharmaceutical company based in Indiana but whose products are sold in 125 countries. Demand for healthcare should escalate along with the population in the years ahead, and that will give Lilly a huge tailwind.
Lilly has a novel approach to new drugs. It focuses on drugs and treatments for unmet medical indications where there is: 1) a higher chance of FDA approval, 2) higher market share, and 3) higher profit margins. These highly desirable drugs and treatments are harder to pull off. But Lilly has been consistently successful at doing so.
The company has a strong presence in diabetes (Trulicity, Jardiance, Humalog, Basaglar), oncology (Alimata, Cyramza, Verenio), and newer drugs in immunology (Taltz and Olumiant). Many of these drugs are difficult to duplicate and provide Lilly with more patent protection than most of its peers. One new big-ticket drug that awaits a likely FDA decision sometime this year is donanemab, a drug for Alzheimer’s. There is a massive unmet need for this common disease with few drugs or treatments available.
But the biggest driver of both revenues and the share price the last 18 months has been its blockbuster obesity drug, Mounjaro. Along with Novo Nordisk’s (NVO) Ozempic and Wegovy, Mounjaro (technically under the name Zepbound for obesity, Mounjaro for diabetes treatment) has revolutionized weight loss. It became Lilly’s second-best-selling drug in 2022, the year it launched. It brought in more than $5 billion in 2023, its first full year on the market, and accounted for 27% of total prescriptions in the U.S. Mounjaro sales more than tripled (to $1.8 billion) in the first quarter of this year.
Weight-loss drugs have proven incredibly effective, and are a market that’s here to stay. But Eli Lilly is so much more than that, and could be become even bigger in the years to come.
DraftKings (DKNG): Sports gambling is still in the legalization phase, as different states adopt it. But it’s spreading like wildfire – and it’s BIG business.
In the U.S., just about half the population lives in states that have legalized online sports betting, with iGaming legalization way behind that. So as legalization works its way forward (Kentucky, Vermont, Puerto Rico and North Carolina recently authorized mobile sports betting), the market obviously increases.
Even in places that legalized sports betting a year or two or three ago, growth remains rapid—there seems to be a much longer “tail” of growth in these areas as more new customers sign up and those that are already members gamble more frequently. Indeed, in Q1, DraftKings said its average revenue per user was $114, up 25% from the same quarter a year ago. Thus, even if there were no new states that joined the party (North Carolina did in the first quarter), there looks to be plenty of untapped potential here.
And the growth is clear: DraftKings’ revenues have doubled or nearly doubled every year since 2019, going from a mere $312 million sales to $3.58 billion last year. This year, it’s expected to reach $5 billion – more tame growth at 35.3%, to be sure, but the company is also closing in on becoming profitable for the first time.
The stock has performed well, with DKNG shares up nearly 200% in the last two years as legalization has spread. But it’s well off its March 2024 highs (48), and there’s plenty of upside, with the average analyst price target of 52.
Legalized sports betting is only going to become bigger and more legalized in the years to come. And DraftKings is the best way to play it.
All three of these companies are surging and could be among the next FAANG stocks (we would need a new acronym of course). It might happen sooner than you think, so now is the time to invest in any one of them.
What growth stocks do you own that you think could be a future FAANG?
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*This post is periodically updated to reflect market conditions.
