Your Clients’ Portfolios: Should You De-FAANG Them?

Your Clients’ Portfolios: Should You De-FAANG Them?

Sure, Amazon, Apple, Facebook, Netflix, and Google (Alphabet) have a cumulative market cap of some $2.8 trillion, can swing markets up or down, and have been behind the longest bull market ever.

At the same time, with the major indexes more and more dependent on the FAANG stocks, financial advisors should review whether they still represent sound investment opportunities for their clients.

Amazon is showing consistent growth, yet posts cash flow deficits every year. It’s unclear whether this growth is sustainable in the long term. Netflix is likely to stay cash-flow negative for the foreseeable future, as it channels more and more debt into the creation of original content. Attracting its next 130 million paying customers will happen at a much lower average revenue per user, especially given increased competition from Disney et al.

Apart from MasterCard (MA) and Visa (V), which together make up more than 80 percent of card spending in the US, and whose strong incremental margins create healthy room for growth, other tech companies, such as Accenture and Cognizant Technology, offer investors the chance to benefit from growth in the technology sector without investing in the FAANGs.

Surrounded by a fog of tech-heavy headlines, investors can lose sight of the many alternatives extant in other sectors. Many companies boast business models no less strong than the FAANGs’, yet with better cash flow visibility – a key metric when evaluating potential investments. Besides, e-commerce and technology aren’t the only options. Advisors seeking investment opportunities for clients should research non-FAANG firms with competitive advantages they can maintain.

A non-obvious sector is auto salvage. Salvage frequency is up due to an aging vehicle base, growing repair costs, and other factors. Copart (CPRT), a global online auctioneer of salvaged cars with few competitors, is in an enviable position to capitalize on the growing salvage trend.

For more information, please read:
Is It Time To De-FAANG Your Clients’ Portfolios? | Financial Advisor


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