The FAANG (Facebook, Amazon, Apple, Netflix and Alphabet, parent of Google) are all growth stocks. Famous investor Peter Lynch classified businesses into 6 main types depending on their annualized growth rates:
- Fast growers: growth is > 20%
- Stalwarts: growth is between 10% and 20%
- Slow growers: growth is single digit and typically pays a dividend
- Asset Plays
Many investors also suggest that it is better not to consider cyclicals and turnarounds to be included into your portfolio as they are very difficult to analyze and get right unless you are absolutely very familiar with the industry and company.
Asset plays refer to banks and property plays where their valuation is very dependent on their net asset value.
In the short term, the share price of a company fluctuates wildly up and down and does not always reflect the fundamentals of the company. The share price however does align to the intrinsic value of a company in the long term. This is why the father of value investing Benjamin Graham famously said: “In the short run, the market is like a voting machine but in the long run, the market is a weighing machine.”
One measure of this intrinsic value is of course the growing trend of the eps (earnings per share). Below shows the charts of the eps growth trajectories of the FAANG stocks for the past 10 years, and that is reason enough for the sex appeal of these companies
The CAGR eps growths of FANNG over the past 10 years have been 49%, 28%, 21%, 29% and 16% respectively with some exhibiting explosive growth over the recent years (just look at Netflix and Amazon) while some have slowed down a little.
I love growth stocks. No company can grow at high rates forever but can these companies continue to grow at 20% to 30% a year over the next 10 years at least? You know you will then enjoy great returns even if you are buying them at slightly overvalued prices (see illustration red circle below).
I will be sharing how I further analyze each of these companies and the strategies I use to invest or not invest in them. Do join me over a Zoom Webinar on 12th June Friday at 7.30 pm. Register here.
At Journey With Money, we are practitioners of Value Investing for Singapore and US stocks. We are passionate about sharing our Stock Investment knowledge and experience but the materials we present do not constitute stock recommendations and readers are urged to do their own due diligence for any investment decisions.
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