The FAANGs are the biggest growth stocks on the market today. What are the companies most likely to be the next FAANG stocks?
Twenty years ago, the five largest public companies by market capitalization were General Electric (GE), Microsoft (MSFT), Exxon Mobil (XOM), Walmart (WMT) and Pfizer (PFE). Today, only one of those companies (Microsoft) cracks the list.
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 even among the 30 most valuable public companies in the world.
In 2021, the FAANG stocks (Facebook (FB), Amazon (AMZN), Apple, Netflix (NFLX), Google (GOOG)) reign supreme, accounting for about 15% of the S&P 500. More often than not, as they go, so goes the stock market. And it seems like it’s been that way forever.
But a decade ago, Facebook wasn’t even a public company; Netflix was still primarily a DVD-by-mail outfit that was two years away from creating any original content; and Amazon stock was at 210 a share. Things change quickly—in the business world, and on Wall Street.
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Right now, it seems like the FAANG stocks will continue to run up in perpetuity, and will continue to dominate the market and the economy for years and perhaps decades to come. History says that’s unlikely.
Earlier this year, Mike Cintolo, our resident growth investing guru and market expert, was asked a question on a webinar he hosted about which of the FAANG stocks he’d recommend buying now. Mike paused for a second, then responded, “None of them.”
His reasoning? Their greatest periods of growth are behind them. Indeed, those five big tech stocks have posted an average gain of 347% in the last five years—more than triple the return in the S&P 500 (105%) and nearly double the return in the Nasdaq (190%). The five years prior to that, the FAANG stock gains were even more outsized.
As we’ve learned from XOM (-18% in the last decade), GE (-11%), IBM (-22%) and PFE (lots of momentum lately thanks to the Covid-19 vaccine, but shares just now matching their 1999 all-time highs), companies don’t stay on top forever. The global economy is always evolving, and the companies that don’t evolve with it get left behind.
Exxon and Chevron dominated when the world was almost entirely dependent on oil. Now with the rise of alternative energies and electric cars, they’re being left in the dust.
Ditto GE, whose products and innovations are no longer as in demand in an increasingly digital world. IBM was ahead of the curve on computer technology; now it has grown stale. And people aren’t shopping at Wal-Mart the way they used to, thanks to Amazon and other e-commerce options that allow people to do their shopping from their couch.
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 five leading candidates to become the next FAANG stocks:
5 Candidates to be the Next FAANG Stocks
Tesla (TSLA): This is probably the closest thing to a FAANG stock that isn’t one yet. You know Tesla. It’s the seventh-largest company in the world by market cap (bigger than Netflix); the stock is up 1,898% in the last five years; and the company has made founder Elon Musk the world’s richest man. Sounds like a stock whose best years are behind it, right? Yes, but while TSLA stock may not replicate its 1,898% return in the next five years, it is still the clear leader in an industry (electric vehicles) that is just scratching the surface of its potential. As the world continues its trend toward lowering carbon emissions, Tesla’s standing – and business – will grow.
Spotify (SPOT): The leading streaming music player just recently broadened its offerings into podcasts. At the end of the second quarter, it had 165 million paid subscribers, up from 138 million in the same quarter a year ago and 108 million two years ago. In essence, Spotify is becoming to streaming audio what Netflix is to streaming video. The stock took a while to get going after its April 2018 IPO, but is up 103% in the last two years, despite a big drop-off since peaking this February. If the company can figure out how to turn a profit, SPOT shares could skyrocket in the coming years.
Teladoc (TDOC): We’ve all likely met with a healthcare provider online instead of in person sometime in the last year and a half. And Teladoc happens to be the leader in on-demand healthcare service over the internet. Not surprisingly, the company has benefited greatly from Covid-19, with revenues accelerating (24%, then 27%, then 40%, then 85%, then 109%, then 145%, then 150%) for seven quarters straight, before pulling back to a “mere” 108% in the latest quarter. And the stock was following suit, more than doubling in a year before a massive retreat this February and March knocked it back to multi-month lows. Still, the need for healthcare will never go away. The need to be there in person for all your appointments is.
Virgin Galactic (SPCE): Space: the final frontier? Founder Sir Richard Branson still thinks so. If all goes well, Branson will be on his company’s first flight to space that includes paying passengers later this year (he already was among the few passengers to test-ride the company’s first space flight without customers this summer). Revolutionary? Absolutely! Big potential? Yes! Big earnings potential? Eventually—the long-term goal is ultra-fast transcontinental travel, like New York to Tokyo in two hours. Obviously, there are major hurdles. But the company is well funded and has experienced management, so it’s quite possible. And the stock is up 122% in the last two years despite some big ups and downs this year. Best to wait for this one to stabilize before nibbling.
ETFMG Alternative Harvest ETF (MJ): This one’s a bit of a cheat. As you can see, it’s an ETF, not a stock, and this article is about the top candidates to become the next FAANG stocks. But it’s hard to pick just one when it comes to the marijuana industry. Thanks to spreading legalization and now a cannabis-friendly administration and Congress in Washington, marijuana retail sales are accelerating—but still in the early stages. After a two-year retreat, marijuana stocks had a very good 2020 and great to start to this year….before retreating sharply again over the past eight months. No matter – they won’t stay down long. And this is the largest ETF that allows investors to gain access to all of the biggest cannabis stocks. Eventually, one or two marijuana retailers will emerge as the clear market leaders. Until then, MJ is the best way to play the sector’s inevitable rebound.
What growth stocks do you own that you think could be a future FAANG?
Investment analyst and Chief Analyst of Cabot Wealth Daily, Chris Preston brings you all the latest from the investing world. Sign up to get updates and breaking news delivered FREE to your inbox. Get unlimited access to our library of complimentary investing reports.Sign up now!
*This post has been updated from an original version, published in 2020.