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. 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 175. 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.
Last week, 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 339% in the last five years—more than triple the return in the S&P 500 (98%) and well more than double the return in the Nasdaq (133%). The five years prior to that, the FAANG stock gains were even more outsized.
As we’ve learned from XOM (-41% in the last decade), GE (-44%), IBM (-26%) and PFE (-13% in the last 20 years), 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’s 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 fifth-largest company in the world by market cap (bigger than Facebook and Netflix); the stock is up nearly 2,000% 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 2,000% 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 third quarter, it had 144 million users, up from 113 million in the same quarter a year ago and 87 million in Q3 2018. 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 125% in the last year. 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 health-care provider online instead of in person sometime in the last 10 months. And Teladoc happens to be the leader in on-demand health-care service over the internet. Not surprisingly, the company has benefited greatly from Covid-19, with revenues accelerating (41%, then 85%, then 109%) in the last three quarters. And the stock has followed suit, up 168% in the last year. The need for health care 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. 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 has doubled in the last year.
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 have been on a tear for the better part of nine months, 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 rise: MJ is already up 30% in 2021.
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!