There is a word that is gaining prominence in the financial world, in particular on Wall Street: FAANG.
What does it mean? It is the acronym that brings together five technological actions that, together with Microsoft, are the most popular in the world. Specifically, they are the initials of Facebook, Apple, Amazon, Netflix and Google, regardless of whether the latter has changed its name to Alphabet.
Why this denomination? It is the way to demonstrate the power of a group of companies that over recent years has been growing with unusual firmness, leaving behind a host of competitors.
Its original designation was FANG and its creator was the analyst of the television network CNBC Jim Cramer. Then, from its overwhelming advance, investors added to Apple, creating the FAANG group.
The sum of these companies is equivalent to just over 15% of the S & P 500, the most representative stock index of the US economy. Within the Nasdaq 100, which brings together a hundred high-tech firms, brings together no less than 25% of the total.
To have a better idea of ââtheir specific weight, nothing better than relating their market capitalization -ie, how much they are worth at market prices- with the GDP of some countries. The results exempt from any comments:
- They represent close to 20% of the GDP of the main world power, the United States, or the European Union
- Only exceeded worldwide by China, Japan or Germany
- In the case of South America, it equals the sum of all the countries in the region
- Equivalent to seven times the GDP of Argentina
Recent evolution
Although the growth of the "FAANG group" over the years was much higher than the rest of the market, which allowed it to displace traditional firms from leadership positions in the stock market, in the second half of 2018 it faced difficult moments from the decision of the US Federal Reserve of raising interest rates.
To this, the recrudescence of the US-US trade war was added. and China, since technology is one of the hottest points of conflict. This caused a huge wave of sales that affected these stocks, which suffered on average a fall of 20% in just a couple of months.
However, over the course of the weeks they have managed to recover, with Facebook in the lead, as their role registers a shocking rise of 44%, followed by Netflix, with 33%. Below are those of Apple and Amazon, above 27%, and closes the list of Alphabet (Google), which showed the slightest advance of 7%.
Taking into account the market capitalization of all of them, the average growth amounts to 25%, compared to 19% of the Nasdaq 100:
Moreover, since the market entered its last uptrend cycle, these companies accounted for almost a fifth of the S & P 500's earnings.
Beyond the "power" of this group, "there is a certain divergence within it," says Shawn Cruz, commercial strategy director of the TD Ameritrade broker. "That is why we must differentiate between all the actions included in the same basket."
Precisely, one of the ways to analyze them individually is through the price-earnings ratio per share (known as Price Earning or P / E). For example, if a company has a P / E of 4 it means that if that company earns in the future the same as in its last year (E), the investor will be able to repurchase that paper (P) with the profits accumulated in that period ( 4 years).
In the case of the FAANG, the future P / E are the following:
- Netflix: 127
- Amazon: 79
- Google: 28
- Facebook: 28
- Apple: 17
"What the financiers believe is that the earnings estimates assigned to Google, Facebook and Apple are much lower risk than those of Amazon and Netflix," says Agustin Cramo, an analyst at international financial markets.
"The difference in valuation between companies is due to the fact that their risks are associated with their respective business models," adds the expert. For example, Apple is already in the mature part of its cycle, while Netflix is ââstill in its early stages of growth.
Each company faces them today
Although the evolution of the quotations is very satisfactory and the balance sheets support this upward path, it is convenient to review what are the challenges they face at present.
1. - Facebook: introduced Libra, a virtual currency created with more than two dozen partners, including Uber, PayPal, Visa, MasterCard, Mercado Pago and Spotify. Unlike Bitcoin, for example, it will be backed by a reserve of currencies from around the world that could include the US dollar, euro and yen.
It is a very important bet, since everything indicates that it will revolutionize the payment system at a global level, although it is likely to generate privacy concerns among those who are wary of offering more personal information to the platform. Therefore, from the company they claim that they will keep their financial data safe and separate from those of their social platforms.
2.- Apple: it is one of the most affected by the US trade war. and China, which includes the White House dispute with Huawei. In this context, he has decided to take a momentous step to try to isolate himself from the conflict.
Announced that it evaluates moving up to 30% of its production in the Asian country, including the iPhone and other devices to other countries. In fact, it transpired that it is already negotiating with its main partners and suppliers at the global level the implementation of a "fundamental restructuring" of the supply chain.
3.- Amazon: does not stop at its policy of diversification of activities around the world. Now it is the turn of Spain, where the subsidiary opened its new store "Motors", which allows to rent cars for extended periods. The current offer includes different models of BMW, Ford, Fiat, Tesla, Seat, Jeep and Subaru. And the prices range from 212 to 1,100 euros per month.
Raoul Heinze, director of Automotive at Amazon in Europe, says that with Motors his company focuses on offering "low prices" and adds that "customers can change the model and renew their contract for a new vehicle every 3 or 4 years."
Of course, its progress is not without obstacles. One of them is the magnitude of its portfolio, which already exceeds more than 130 million users, with the expectation that they will reach 200 million by 2021.
4.- Google: it is going through a delicate moment after the decision of the control organisms of its country and of the European Union to investigate if it is carrying out monopolistic activities.
Even a group of investors suggested that the company's parent, Alphabet, take steps to split up before regulators force the largest Internet search engine to split into several companies.
The authorities of the United States and the European Union are worried about the power that Alphabet has in the market, taking into account the restrictions on monopolies. In this framework, shareholders could receive a greater benefit if the company decides a voluntary strategic reduction of its size, based on sales of assets ordered by regulators, "he adds.
However, the proposal is far from materializing for one simple reason: the two top executives of Alphabet, Larry Page and Sergey Brin, have 51.3% of the votes of the shareholders.
How to get on this train from Argentina
The remarkable evolution of the FAANG awakens, without doubt, the interest of potential investors who in most cases do not know for sure how to buy shares of these firms.
In the case of Argentine savers, the possibility of accessing these titles is relatively easy and can be done in different ways. Undoubtedly, the easiest way is to buy them directly through an outside broker that operates in New York, but for this it will be required to have an account in a brokerage house in that place, which is not very usual.
Due to this, for a long time the most suitable form has been to access through the so-called CEDEARS, as it is called the CErtificados de Depósito de Acciones of foreign companies that do not operate in the country. These instruments are traded on the Buenos Aires Stock Exchange and they replicate the price of paper in their home market.
The main advantage is that they are exempt from the "Argentine risk" and that their price also takes into account the variation of the local exchange rate. Their counter is that they usually have a low level of liquidity.
The analysts of Invertir Online point out that "through this instrument it is possible to access shares of the main foreign companies, which in the case of the FAANGs are sent to Apple and Google, obtaining in addition to the returns for performance in the market, coverage against the exchange rate and a decrease in local risk ".
Another way is to do it through an Argentine stock exchange company that has the possibility of negotiating in that market, a relatively new option that is set to gain importance over the course of the months.
"To invest in Wall Street, it is not necessary to open an additional bank account or broker, with the same account that is operated in the local market through Rava Bursátil, by converting the assets abroad or incorporating new funds. from the bank account for that purpose, "they say from Rava Bursátil.
And they add that "once the conversion is done, which is done during the day, it is possible to channel the orders even through the web platform". In this case, for the opening of the account is basic requirement to make an initial deposit.
In the same direction, Portfolio Personal Inversiones and, through an alliance with Saxo Bank, a Danish entity with a vast technological platform, launched a portal that enables its clients to invest in assets from around the world in real time.
Paula Premrou, CEO of the firm, states: "The new PPI Global service allows, from an account in Argentina with more than 35 thousand products -between bonds, stocks and financial assets- to operate in the stock exchange of China, Madrid or any other market.
According to the expert, "the idea is that the user can follow their portfolio every day efficiently, to buy and sell in stock markets that have other schedules, so it is always available, since the tracking is in real time."
As you can see then, those who want to invest in this type of company today are in better possibilities to do it with a simple click.
