There’s nothing wrong with the FAANG stocks. In fact, some of them are actually pretty good and have bright futures ahead.
But with trillion-dollar market caps and already billions in revenues, the FAANG stocks aren’t exactly growing like they used to. To be honest, the collection of firms — including Facebook (FB), Apple (AAPL), Amazon (AMZN), Netflix (NFLX) and Alphabet (GOOG, GOOGL)– have become less exciting over the last few quarters. And we can’t forget that these firms are already some of the biggest holdings in many index and active funds. There’s a good chance you’re already overweight them. For investors looking at the tech sector, making a play on the five horsemen may not may a ton of sense.
To that end, the best growth in tech could be outside the FAANG stocks.
It’s here that investors can find plenty of leadership, growth and future potential. And you don’t have to think very small or bet on start-ups to get the effect. There are plenty of mid- and large-cap tech stocks that could give the FAANGs a run for their money over the longer haul. For investors, taking a different approach could be best.
So, which firms should you swap out the FAANG stocks for? Here are six that make great selections.
Pick Pinterest over Facebook
With Mark Zuckerberg being paraded once again in front of Congress to testify, Facebook continues suffer. FB has spent more of its time in recent quarters defending itself against scandals, fake information and other issues than it has developing new products. And even then, those new products haven’t lived up to the hype. With the “Delete Facebook” movement growing and people actually going through with it, the social media’s days aren’t looking too “growthy.”
Which is why upstart Pinterest (PINS) may be a better choice.
PINS operates essentially a digital bulletin board. If you like a recipe, outfit, paint color or even meme, you can pin it to your board. The overall point is that it’s all about you. There is almost zero interaction with other people. That’s a key feature in the current “toxic” social media world. Which helps explain why Pinterest saw its user count jump 30% last quarter.
The benefit to PINS stock is that unlike Facebook, people visit the site looking for ideas and inspiration. Basically, many of its users are in the market to directly buy something specific. While Facebook builds a user profile for advertisers, there’s no guarantee that they actually want to buy the product being pushed into their feed. With PINS stock, you’re more often already primed to buy something. This gives it an interesting revenue edge, and as a result, revenues at the firm surged 41% in the U.S. alone last quarter.
Given the tailwinds and user growth/migration, PINS stock could be a great alternative to Facebook. It comes with far less headaches than the FAANG.
Cisco over Apple stock
When it comes to the FAANG stocks, Apple is considered a “value” stock. And yes, it’s growing via subscription revenues and the new iPhone 11 as well as Apple TV could be big hits. Apple is a big, plodding dinosaur that pays a hefty dividend. Under that guise, there may be better plodding dividend-paying tech stocks that offer slightly better growth prospects rather than focusing on fickle consumer products.
Take Cisco (CSCO) for example.
CSCO has the cash hoard like AAPL — and the buyback/dividend history. The key is that Cisco’s products aren’t tied to just one ecosystem. With 5G, cloud computing, and networking continuing to surge, CSCO’s products are used by everyone — including Apple users.
And because of that, Cisco features a more stable base of growth than Apple. Revenues, margins and cash flows have all moved higher for CSCO over the last three years. More importantly, that ride has been a lot smoother than Apples.
Again, it’s not that Apple is rotten. It’s just there’s a lot more fickleness with how it is generating its revenues going forward. We’ve seen that play out over the last few quarters. The question is as a dividend and value stock, do you really want that bumpiness?
If not, it may be time to switch the FAANG stock for a different tech dividend star.
ServiceNow & Etsy over Amazon stock
Truth be told, Amazon may be a bit unstoppable when it comes to the FAANG stocks. As both a retailer and operator of cloud services, AMZN is a bit of a weird bird. But the combo works well.
However, this last quarter, Bezos’ Baby didn’t exactly perform well and there were a few cracks. AWS revenues did dip and the firm missed estimates thanks to rising expenses related to one-day shipping.
While I’m not selling, you may want to think about other options if you’re buying.
On the retail side, craft/home goods provider Etsy (ETSY) could make for a prime choice. The key is the firm’s branding. Since it’s known as the go-to eCommerce site for homemade goods, ETSY has an Amazon-proof business. In fact, Amazon’s own attempts in this area have fallen flat. Because of this, the site has continued to rising revenues and now, profits from its operations. Additionally, new services for sellers including free shipping and advertising have made ETSY very Amazon-like in its moves. Meanwhile, its still pretty protected in its niche.
As for the cloud, ServiceNow (NOW) continues to be a dominate force in business process automation. NOW offers a suite of targeted Software as a Service (Saas) applications across IT functions to improve workflows, reduce costs and keep modern companies running smoothly. The best part is that NOW has been able to pivot those IT applications across security, customer relationship and human resources functions. That allows it to hook companies and plug them into their entire ecosystem. The proof is in NOW’s continued top-line results. Subscription revenues, backlog and tangential account growth continues to be swift.
In the end, Amazon is major tech stock and one of the real all-stars among the FAANGs. However, both NOW and ETSY are giving it a run for its money — albeit, on a much smaller scale.
Roku over Netflix stock
In the early days of the streaming wars, Netflix was really the only option for both consumers and investors. However, these days, every content producer, network and channel has its own “+” option for streaming. And with that, competition has grown and NFLX can’t be considered top-dog anymore. But only one device lets you surf them all and that’s Roku (ROKU).
From Apple TV, Hulu and Disney (DIS) to even Netflix itself, ROKU allows users to access them all through its devices. The win is that the software running the ROKU platform is open source. Because of this, every network’s apps work well on it. And in turn, TV and DVD/Blu-ray manufacturers have chosen it as the standard and already embed it on many devices. This gives the stock a huge edge. It really doesn’t matter who you subscribe to, you’re going to watch it on ROKU’s platform. More importantly, all those content producers will pay Roku a hefty fee to make sure all those eyeballs see their shows on those devices.
And since you’re here, ROKU will gladly show its own channel and entertainment options as well. It’s here that the firm is seeing the most growth. Thanks to its own data collection, Roku has become an advertising giant. Total platform revenue — which includes ads and payments made by content providers — jumped 86% year-over-year. That’s some torrid growth.
In the end, ROKU stock has positioned itself to be the Netflix of the future. That makes it a top buy, rather than the slowing FAANG stocks.
Trade Desk over Google stock
Alphabet changed the face of advertising with its online and search model. And there’s no doubt that it is a dominant force in advertising. However, it’s not the only game in town, and as marketers fight for eyeballs across a variety of digital channels, Alphabet is now being forced to deal with some cracks in its armor. Which is why Trade Desk (TTD) is a better bet over the FAANG stock.
The basic gist is that TTD helps match up advertising inventory — or spots on the internet where ads can be placed — to those marketers looking to place ads. Where it gets complex and how Trade Desk has an edge is on two fronts. Like previously mentioned ROKU, Trade Desk is a platform and in that, it’s selling everywhere and not just on its own site.
Secondly, TTD uses high-speed computers and various algorithms to automate the process of ad buying in real time. Those computers are so fast that the firm is able to place roughly 9 million ads per second across nearly 20 digital-ad exchanges. Those exchanges, by the way, also place ads on Google and Facebook.
What this really does is allow advertisers to instantly find exactly who they want to target at exactly the right movement. And marketers love it. TTD has continued to see positive growth — with revenues surging 42% last quarter. This follows a 41% jump in the first quarter of the year.
The best part is that there’s still plenty of potential down the road. That’s because Trade Desk continues to move into connected and streaming video/TV. With streaming still picking up speed, this is a huge opportunity for TTD to work its magic in real time as you binge watch your favorite shows.
All in all, TTD stock is a great alternative to GOOG stock these days.
At the time of writing, Aaron Levitt was long AMZN, TTD and ROKU.
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