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 Microsoft (MSFT), General Electric (GE), Exxon Mobil (XOM), Walmart (WMT) and Pfizer (PFE). Today, only one of those companies (Microsoft) cracks the list. And none are likely to be the next FAANG stocks.
Ten years ago, Microsoft and Exxon were still there, along with hard-charging Apple (AAPL), International Business Machines (IBM) and Chevron (CVX). Today, Apple and Microsoft remain, but the other three aren’t among the top 12 most valuable companies in the world (Exxon is 16th … and falling).
In 2021, the FAANG stocks (Meta Platforms (META), Amazon (AMZN), Apple, Netflix (NFLX), Google (GOOG)) reigned supreme, accounting for about 15% of the S&P 500. More often than not, as they go, so goes the stock market – or at least that was the case about 15 months ago. Then, 2022 happened.
Last year, the five FAANG stocks fell by an average of 46.2%, knocking all of them back to prices not seen in years. All of them have rallied this year, almost single-handedly leading the market out of its bear market abyss, at least until artificial intelligence stocks joined the fray in the spring to help, but the FAANGs remain below their 2021 highs and likely don’t have a ton of upside remaining.
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Claims that the FAANG stocks are dead were premature; they’re not “dead” … more like they’ve moved into a retirement home to wait out their last remaining good years.
So what will be the next “FAANGs?” 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.
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 last year. The switch immediately bore fruit, as revenues tripled in 2022, and it’s still paying off: BYD sold 703,561 vehicles in the second quarter, up 98% 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 28% in the last year, but up 377% in the last five, and trading at a mere 20 times forward earnings – roughly a third of TSLA’s valuation (forward P/E of 58), with better growth ahead.
Nvidia (NVDA): Along with Tesla, Nvidia is the closest thing to a FAANG stock that isn’t one; it’s the sixth-largest public company by market cap (ahead of Meta and Netflix), and it’s perhaps the best mega-cap way to play the artificial intelligence boom. In fact, it now proclaims to be the “world leader in artificial intelligence computing.” It may be right, but dominating the AI landscape didn’t mean as much until now. With the rest of the world ready for AI, Nvidia is seeing a massive boost to its business: Revenues are expected to rise 60% to a record $43 billion in the current (FY ’24) fiscal year, while earnings per share are on track to more than double. The stock is quite frothy at the moment – up 182% year to date but trading at 25 times forward earnings (the trailing P/E of 100 shows how quickly earnings are rising). But there’s enough growth to warrant such a lofty valuation and sustain its current run for years to come.
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 ($540 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. Drugs that await a likely FDA decision sometime this year include two potentially game-changing mega-blockbuster drugs. One is an Alzheimer’s drug (donanemab). There is a massive unmet need for this common disease with few drugs or treatments available. Another is a current diabetes drug that has had very successful late-stage trials for weight loss. Obesity is a massive problem, and this drug has thus far proven to be superior to anything else on the market.
Even before those two potential cash cows gain approval, Lilly is growing just fine: Revenues are expected to expand 10% this year and another 20% next year. The stock is already near all-time highs but has a history of outperforming, producing a whopping 84% average annual return over the last five years. And now, prospects look better for the company than they did at any time over that five-year period.
All three of these companies are surging and could be among the next FAANG stocks (we would need a new acronym of course), especially should the market gains steam. 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.
