For investors, it’s almost impossible to ignore FAANG stocks that have been ruling the market for over a decade. The group of five mega technology companies make up more than 20% of the S&P-500 weighting, the greatest dominance of any sector in more than four decades.
That extraordinary power of FAANG stocks means that you are better off by buying some of the top FAANG names to improve your returns. The COVID-19 pandemic has provided the recent manifestation of the leadership of the FAANG when these companies fueled the S&P 500’s fastest recovery from a bear market in decades.
What Are FAANG Stocks? List of FAANG Companies
Before we discuss the investment potential of the top FAANG stocks, let’s make it clear what this word stands for. FAANG is actually an acronym that represents the following technology companies:
- F – Meta Platforms, formerly known as Facebook (NASDAQ:FB)
- A – Apple (NASDAQ:AAPL)
- A – Amazon (NASDAQ:AMZN)
- N – Netflix (NASDAQ:NFLX)
- G – Google, owned by Alphabet Inc. (NASDAQ:GOOG)(NASDAQ:GOOGL)
The main attraction of buying FAANG stocks is their immense growth potential and their dominance in their respective markets. These characteristics have made these companies cash machines that never stop. Apple’s stock-market value briefly rose above $3 trillion in January 2022, making it the biggest listed company in the world.
Over the past decade, FAANG stocks have produced returns that are much higher than the benchmark indices, including S&P-500 and the tech-heavy NASDAQ-100.
Company Total Return (10 Years)
Meta 999%
Apple 958%
Amazon 1,562%
Netflix 3,000%
Alphabet 872%
Source: Investing.com
FAANG Companies Details/Descriptions
There is no guarantee that FAANG companies will repeat the marvellous performance of the past decade in the next 10 years as well, but their market leadership and growth potential suggest that FAANG stocks will continue to be the main driver of capital appreciation for both small and large investors. Here is a brief introduction to FAANG businesses and what makes them the best stocks to invest in:
Meta is the largest social media company in the world, operating four of the five most widely used social media platforms, including Facebook, Instagram, WhatsApp and Messenger.
Facebook benefited immensely during the COVID-19 pandemic as the number of businesses that use social media to reach their customers increased exponentially. To help sustain that momentum, Facebook has been investing in new technologies, such as the metaverse, to fuel future growth.
Amazon runs the world’s largest e-commerce platform, hitting about $1 billion-a-day revenue mark in 2020, reflecting its massive growth since its birth in 1994. Its market dominance, combined with explosive revenue growth, has made it the best FAANG stock when it comes to returns for investors.
Apple’s main strength is its ubiquitous iPhone which makes up the major portion of its sales. Apple made about $366 billion in total revenue in the financial year that ended on Sept. 30, 2021, with iPhones making up about 33% of the total sales. That revenue mix, however, is changing fast as the biggest FAANG stock by market cap tries to sell more of its services which offer higher margins.
Netflix is the smallest FAANG stock by the market capitalization in the group, but the company is the biggest streaming player, providing ad-free movies and shows to over 209 million global subscribers. Its shares surged to a record high in the fall of 2021, powered by massive growth in subscribers during the pandemic when other entertainment avenues were closed.
Alphabet owns the world’s most widely used search engine, Google. The search platform contributed $104 billion to Alphabet’s total sales in 2020, making up half of the behemoth’s total revenue. Google has been the market leader in online advertising for well over a decade and is expected to command nearly a 29% share of digital ad spending globally in 2021, according to eMarketer.
Why Is Microsoft Not in FAANG?
While discussing the influence that mega tech companies command over the market, it doesn’t make sense to exclude Microsoft (NASDAQ:MSFT). The world’s second-largest company by market value has been one of the best bets over the past five years, producing returns that are more than double what the tech-heavy NASDAQ-100 Index delivered.
One possible explanation for excluding Microsoft from the FAANG acronym is that the group represents new areas of the digital economy that encompasses digital advertising, e-commerce, video streaming, social media, and mobile hardware and software.
But that logic doesn’t make sense anymore after the widespread adoption of cloud computing — one of the fastest-growing segments in the digital economy in which Microsoft is the second-largest player after Amazon.
In June 2021, Microsoft took its place in the history books as it became the second US public company to reach a $2 trillion market value. That milestone was reached on the strength of its cloud computing unit and enterprise software that are expected to drive long-term growth for both earnings and revenue
Best FAANG Stock ETFs
The superpower of the FAANG cohort should make you wonder what are the best ways to invest in these high-growth stocks? If you don’t want to take direct exposure to individual stocks, you can always buy exchange-traded funds, or ETFs, which track the performance of mega-cap technology stocks, including FAANGs. ETFs are the low-cost alternatives to mutual funds, giving you a choice and flexibility to buy many stocks through a single fund. Here are some of the best ETFs to get exposure to FAANG companies:
- Vanguard Growth ETF
- iShares Russell 1000 Growth ETF
- Fidelity NASDAQ Composite Index Track ETF
- NYSE FANG+ Index
Bottom Line
FAANG companies’ dominance in major US indices is likely to remain unchallenged for many years to come. Due to their immense power over consumers, technological innovation, and massive cash flows, there is a good possibility that FAANG stocks will continue to play a major role in investment portfolios in the next decade.
