Market Overview

23 June 2020

Is the “Space High” Rise of FAANG Shares Possible?

The so-called "big five" FAANG names, i.e. Facebook, Amazon, Apple, Netflix and Google, are storming a new hill again. The US high-tech Nasdaq composite index rose to a new never-seen-before level of 10,200.

Apple Co shares ended yesterday's trading day in New York at $358.87, which is the new all-time highest closing price. During its Worldwide Developers Conference 2020, which started on Monday, the Cupertino-based company widely announced its expected plans to produce Mac computers using Apple's own processors as soon as this year, moving away from Intel’s chips. So, now it is an official statement, after years of gossip. This step forward can make Apple even more independent from partners, strong and ... it may further increase the present company's capitalisation of $1.555 trillion in the long-run. A year-to-date climb of Apple shares exceeded 22%, not to mention that this asset has successfully survived the peak of the pandemic lockdown.

However, the psychological effect may in this case be greater than financial aspects as Mac computers accounted for less than ten % of Apple’s total revenue in 2019. About 20 million MAC computers were sold every year from 2016 to 2018, which is less than half of the total number of iPads sold for the same period. iPhones make up about 77% of total units distributed all over the world, accumulating more than half of the company’s total revenue, according to Bloomberg data. Apple is also facing a potential negative wave from third-party developers that are essential in ensuring that different applications could still function on the newly equipped Macs as U.S. and European regulators are investigating Apple’s policies over its App Store, which has contributed for more than 18% of Apple’s total revenue.

Apple reclosed 11 stores in Florida, Arizona, North Carolina, and South Carolina last week amid a resurgence in Covid-19 cases. But even this measure seems to have been considered by the majority of the company's shareholders as a move that was made solely for the purpose of the company’s responsible concern for the safety of customers. All these trouble-making points did not prevent the further rise of Apple's stock prices as its business scheme has passed a solid "stress test" in recent months.

As for the other four FAANG names, they are clearly attributed to the class of typical "stay at home" shares, which may even win against the background of a decline in traditional off-line consumer activity. So, the cost of Netflix - the world-leader in the streaming services segment - may grow even without additional news hooks, and now it is again at a new historical high of $468 per share with more unknown in advance upside potential. The average revenue forecast by a Bloomberg expert poll is more than six billion Dollars for the second quarter of 2020 vs the record number of $5.77 billion already in the first quarter.

Many expect Facebook to perform revenue growth as well. Its share price closed on Monday at a new historical high of $239.22, apparently aiming for new higher targets, at least from the technical point of view on charts. The highest close of the day for all time recorded at $2713.82, as performed by Amazon, one of a few companies that hired more new employees during the pandemic. Market bulls continue to buy the e-commerce giant's shares, in anticipation for the release of an essential report in July on how much revenue Amazon has been able to make thanks to online deliveries during the quarantine period. 

In a recent note, Needham analyst Laura Martin assigned a buy rating to Amazon even at its current levels along with a $3,200 price target as she predicted a sharp rally based on the company’s “multiple hidden value multipliers,” which she considers to be its market size, ecosystem and revenue diversification. “We estimate that adding media assets such as Video, Twitch, Music, etc. and groceries to the [Amazon's] Prime bundle lowers churn, keeps users in the Amazon ecosystem for an extra 3 years, and increases the lifetime value by $3,437 per user,” according to her note mentioned by CNBC.com.

Analysts at JPMorgan included Amazon among its top trading ideas, saying that the pandemic "was accelerating online purchasing adoption in key categories like grocery and household items, adding that much of this behaviour will continue post-crisis". Barclays’ analysts also said that Amazon is "still one of the smartest bets for investors, even after its robust performance so far in 2020" during which the stock already gained more than 40%. “Shares always feel a bit crowded, but in the current environment, we’d rather own Amazon than just about anything else,” the Barclays’ note said.

Such kinsd of "space high" forecasts are very impressive, as are the current dynamics of assets. But it would be appropriate to mention a reminder here that "stay at home" stocks sometimes may sharply fall too. Amazon shares declined from mid-February to mid-March, from $2,185 to $1,625 per share before they started climbing again. Netflix shares even reached new historical peaks by the end of March during the pandemic, but then made a sharp correction to $290 per share with the rest of the market. The downward corrections in Facebook shares have been even deeper and longer for the last two years in a row as many investors re-estimated the regulatory risks, the potential growth of loyal users worldwide and the dissatisfaction with the privacy policy of some users.

Considering the prospects for long-term investment, or moreover, short-term investment using any size of market leverage, any market participant should take into account all the past accumulated experience of price volatility in order to build and keep in practice the appropriate principles of money management.


Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.


Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.

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