5 Popular FAANG Stocks To Watch

FAANG is a commonly used acronym to describe five key technology stocks based in the US. This covers Facebook, Amazon, Apple, Netflix, and Google. These fives stocks dominate the NASDAQ exchange in the US by a considerable amount. The good news is that if you’re in the UK and you want to buy FAANG stocks yourself.

In this guide, we discuss the ins and outs of what FAANG stocks are and how you can add some to your portfolio today!

What are FAANG stocks?

Originally coined by a CNBC host in 2013, FANG was a term used to describe four large-cap technology stocks. That’s Facebook (FB), Amazon (AMZN), Netflix (NFLX), and Alphabet (GOOG), the parent company of Google. Then, in 2017, Apple (AAPL) was added to transition the ‘FANG’ term into ‘FAANG’. It is important to note that these FAANG stocks make a significant proportion of the US stock market in terms of valuation.

For example, at the time of writing the likes of Amazon, Facebook, and Google alone have a collective market capitalization of over $5 trillion. As such, when the wide value of technology companies are on an upward trajectory, this is usually because of FAANG stocks. Similarly, when FAANG stocks are performing badly, this typically drags down the wider markets.

Additionally, the vast majority of leading stock-orientated funds will have a collection of FAANG holdings. This is especially the case with the S&P 500 – which is the largest index fund globally. After all, the five FAANG stocks alone constitute 16% of the overall weighting.

Why do Some People Invest in FAANG Stocks?

Put simply, if you are thinking about investing in the wider stock markets, it’s difficult to get away from FAANG stocks. This is especially true if you are considering investing in an ETF or mutual fund.

This is because – as noted in the above section, FAANG stocks have such a large influence on the performance of the US markets.

There are several factors that you need to consider before investing in FAANG stocks, which we explore in more detail below.

Important Features of FAANG Stocks

Before you take the financial plunge, here’s what you need to consider before adding FAANG stocks to your portfolio.

Most FAANG Stocks Don’t Pay Dividends

If you’re in the hunt for dividend stocks, the FAANG collective might not necessarily be for you. This is because of five FAANG stocks, only Apple pays dividends. This means that your investment in Facebook, Amazon, Netflix, and Google will only yield income in the form of capital gains. This still baffles financial commentators when you consider how strong these companies are.

• For example, Amazon, not only does Amazon have a market valuation of over $1.6 trillion and continues to smash through earnings targets, but it has cash reserves of around $50 billion.
• These are the hallmarks of a strong and stable organization that ordinarily – would reward stockholders with regular dividend payments.
• However, in more than 23 years as a public company, Amazon is yet to pay a single dividend.

Then you have Google, which has even larger cash reserves at approximately $117 billion. This is 3% higher than the prior year. But, once again, Google does not pay dividends.

In the case of Netflix and Facebook, these two FAANG stocks only recently entered profitable levels, so a lack of dividends is somewhat understandable. Nevertheless, many would argue that dividends are not the be-all and end-all in the case of FAANG stocks.

FAANG Stocks Defied the Coronavirus Pandemic

The coronavirus pandemic was financially devastating for many stock market sectors. Notably, those active in the travel, airline, retail, and oil industries were hit extremely hard. FAANG stocks did well during the pandemic – with global lockdown measures driving more and more customers to the respective companies.

FAANG Stocks Reviewed

So now that we have explained what FAANG stocks are, this section of our guide will look at each constituent individually. In doing so, this will allow you to make an informed decision as to which, if any, FAANG stock is worth adding to your share portfolio.

Facebook

Facebook is the youngest company of the five FAANG stocks – going public as recently as 2012. Back then, you would have paid $38 per stock.

At the time of writing in early 2021, the same stocks are worth $270. That represents an 8-year increase of over 600%. In more recent times, Facebook has also enjoyed a very fruitful 2020. Defying the wider coronavirus pandemic, Facebook shares were worth $212 at the turn of 2020.

This means 2020 returns of 27%. The key metric that Facebook investors like to focus on – like all social media platforms, is the number of monthly active users. After all, Facebook’s business model is heavily dominated by advertising revenues.

At the time of writing, the number of AMUs on Facebook is around the 2.7 billion mark.

Facebook is in control of highly valuable data. Additionally, Facebook is invested in a plethora of subsidiaries – which covers everything from Instagram and WhatsApp to Oculus and Onavo.

For example, as per its most recent earnings report, revenues were up 22% in Q3 2020 at $21.5 billion. This translated into a 12% increase in operating profits to $8 billion. Looking at the balance sheet, Facebook is holding cash levels in excess of $55 billion, up from $54 at the turn of 2020.

You can read our full analysis of Facebook stocks here.

Amazon

Amazon started out as an online book shop in the 1990s, it is now a global powerhouse with a market valuation of over $1.6 trillion. When this FAANG stock first went public, you would have paid less than $2 per share – adjusted for its several share splits.

Fast forward to early 2021 and the same stocks are worth over $3,200 each.

Starting the year at $1,900, Amazon stocks closed 2020 at $3,285. This represents annual returns of over 72% in a year where many stocks lost value. The reasons for Amazon’s success are somewhat obvious when you consider the lockdown measures that kept billions of people at home.

In other words, with high-street shops forced to keep their doors shut, Amazon’s e-commerce division capitalized on this. However, it is crucial to note that Amazon is more than just an online retailer. After all, it is invested in a significant number of subsidiaries – many of which are performing extremely well.

For example, Amazon Prime continues to increase the number of new customers signing up and more importantly – retiring their subscription. Its on-demand video and movie service is also inching away at Netflix’s market share. In fact, Amazon is really upping the ante with its Prime Video division. This includes an increased focus on original content and live sports.

We shouldn’t discount its AWS (Amazon Web Services) cloud computing division either, which is now worth $35 alone. Innovation is the keyword with Amazon, with several exciting products and services in the pipeline. This includes same-day grocery deliveries via drones and an increased focus on artificial intelligence and machine learning.

In its most recent earnings report, Q3 2020 revenues increased by 37% to over $96 billion. This subsequently translated into a 96% increase in operating profits – taking the figure to over $6 billion for the quarter.

You can read our full analysis of Amazon stocks here.

Apple

Apple is a brand that resonates with billions of people globally.

In turn, not only does Apple now have a market capitalization of over $2 trillion, but it is the largest constituent on the S&P 500 with a weighting of 6.6%.

This FAANG stock enjoyed a fruitful 2020. At the start of the year, Apple stocks were priced at $75. 12 months later and the same stocks will cost you $130. This translates into 2020 gains of 75%.

Apple is the only FAANG stock that actually pays a dividend. In its most recent distribution, Apple paid a dividend of $0.205 per share.

Although amounting to a rather uninspiring yield of 0.59%, it’s a FAANG dividend nonetheless. In terms of the financials, its Q4 report saw revenues grow by 1% in comparison to the prior year, amounting to $64 billion.

This was slightly ahead of Wallstreet expectations. On the one hand, iPhone sales during the most recent quarter were down. On the other hand, Apple made up for this shortfall in sales with good results in other divisions.

For example, Mac sales saw an increase of over 29% – resulting in revenues of $9 billion. iPad sales were even more impressive, seeing a 46% increase to almost $7 billion. Then you have its services division which rose 16% to over $14 billion. This covers the likes of iTunes and Apple TV.

You can read our full analysis of Apple stocks here.

Google (Alphabet)

Much like the other FAANG stocks we have discussed thus far, Google has rewarded shareholders handsomely over the past 12 months. For example, at the start of the year, you would have paid in the region of $1,400

In terms of how it makes money, Google’s revenue model is largely focused on advertising. Not only does this include advertising on its main Google search platform, but via its subsidiary – YouTube, too. Looking at its most recent earnings report, Google saw revenues increase by 14% in Q3 2020 compared to the prior year.

This translated into a quarterly income of over $46 billion – smashing through what the markets expected. There was also a huge increase in operating profit – up by more than 22% from the prior year. Crucially, with cash reserves of over $100 billion on hand, Google is well prepared to diversify into other sectors and thus, reducing its strong reliance on advertising.

You can read our full analysis of Alphabet stocks here.

Netflix

The final FAANG stock that we need to discuss is Netflix. In comparison to its fellow FAANG counterparts, Netflix is actually a lot smaller – at least in terms of market valuation. For example, while the likes of Apple and Amazon are now worth over $1 trillion, Netflix is currently valued at $230 billion.

Nevertheless, of the five FAANG stocks that you have at your disposal, may argue that Netflix offers the greatest upside potential. Although Netflix is now a household name, this hasn’t always been the case.

Sure, the firm went public before both Google and Facebook, but its original business model was somewhat uninspiring. That is to say, before the days of on-demand content, Netflix initially offered a DVD rental service. It goes without saying that Netflix benefiting from global lockdown measures is an understatement.

After all, with people forced to stay at home, many turned to Netflix – meaning that subscription numbers went through the roof. Naturally, this fed through to the company’s stock price. At the start of 2020, Netflix shares were priced at just over $335. Midway through the year, Netflix stocks hit all-time highs of $575.

This translated into a growth of 75%. The shares have, however, cooled off slightly since. At the time of writing in early 2021, a single Netflix share will cost you $520. This works out at a discount of 10% based on its 2020 highs.

On the flip side, operating income actually increased from $980 million in the prior year to $1.3 billion. This is largely due to Netflix’s increased focus on original content. After all, it doesn’t need to pay third-party licensing fees.

Crucially, there are two key issues with Netflix that must be taken into account before you consider investing in this FAANG stock. First and foremost, the financial position of Netflix is at the complete opposite end of the scale in comparison to the likes of Apple, Amazon, Facebook, and Google.

While the aforementioned tech stocks have billions of dollars in cash reverses on hand, Netflix is still unable to consistently finish the quarter cash flow positive. This is because it continues to serve outstanding debt obligations – albeit, at competitive rates. Secondly, Netflix and its on-demand content streaming service are now facing fierce competition from several angles.

You can read our full analysis of Netflix stocks here.

FAANG Stocks ETFs

We have discussed each FAANG stock in great depth, so you should now have a good idea whether or not you want to proceed with an investment. However, we should make it clear that you do not need to buy FAANG stocks on an individual basis. Instead, you could invest in all five FAANG stocks via an ETF.

The FAANG ETF in question will be listed on a public stock exchange, so you can enter and exit the market whenever you see fit. With that said, it is important to note that there isn’t an ETF that focuses exclusively on the five FAANG stocks. Instead, although a reasonable weighting will be given to the five constituents, other stocks will be included in the ETF, too.

Nevertheless, three FAANG stocks ETFs that we came across are as follows:

Invesco QQQ

The Invesco QQQ is an ETF that tracks the NASDAQ 100 index. As you might know, all FAANG stocks are listed on the NASDAQ, and thus – this is a great way to gain exposure to Facebook, Amazon, Apple, Netflix, and Google. In fact, much like the index itself, the Invesco QQQ is weighted by market capitalization. This means that a huge focus is on the five FAANG stocks.

The weighting of the ETF looks like the following:

• Apple at 13.39%
• Amazon at 10.66%
• Google at (Alphabet) at 6.73%
• Facebook at 4.26%
• Netflix at 1.9%

As per the above, the Invesco QQQ ETF gives over 36% of its portfolio to the five FAANG stocks. In addition to this, you will be investing in a full range of other tech-oriented companies. Think along the lines of Tesla, Cisco, Intel, Microsoft, Adobe, and Nvidia.

iShares NASDAQ 100 ETF

As the name suggests, this ETF also looks to track the NASDAQ 100 much like the QQQ fund we discussed above. However, the key difference is in the weighting system implemented by iShares.

The weighting of the ETF looks like the following:

• Apple at 12.13%
• Amazon at 8.81%
• Google at (Alphabet) at 4.00%
• Facebook at 3.56%
• Netflix at 1.94%

As you can see from the above, each FAANG stock has a slightly lower weighting in comparison to the QQQ ETF. This means that your money will be more evenly distributed across the other tech-oriented stocks that are listed on the NASDAQ.

Vanguard S&P 500 ETF

The S&P 500 index has constituents in the New York Stock Exchange. As such, you won’t be putting all of your eggs in one tech-oriented basket and you can diversify your portfolio.

The 10 holdings of the S&P 500 is as follows:

As you can see from the above, you’re getting a more balanced portfolio – with the likes of Johnson & Johnson, Berkshire Hathaway, and JPMorgan Chase making an appearance.

Plus, instead of only investing in 100 stocks (50%-ish of which are tech-oriented) from the NASDAQ, this ETF gives you exposure to 500 different companies. As such, this allows you to invest in FAANG stocks in a more diversified manner.

Popular FAANG Stock Brokers in the UK

So now that we have discussed some FAANG ETFs, we need to talk about where you can make an investment. After all, FAANG stocks are based in the US – meaning that you will need to use an online broker that gives you access to the American markets.

Not only this, but you need to consider fees. This is because most brokers in the UK charge a premium to purchase non-domestic shares.

Taking all of this into account, below you find a selection of UK stock brokers offering access to FAANG stocks.

1. DEGIRO

Degiro covers dozens of international stock exchanges – including the NASDAQ. Once again, this means that you can buy FAANG stocks from the comfort of your home. In terms of fees, Degiro bills itself as a low-cost broker.

Nevertheless, should you wish to buy FAANG stocks at Degiro, you will pay €0.50 + $0.004 per share. As you can see, this is a bit of a complicated pricing structure as Degiro uses both euros and US dollars to calculate its commission. Nevertheless, this usually works out at less than £1 per investment.

You will also need to pay a ‘connection fee’  of €2.50 for each individual exchange that you purchase shares from, which is charged annually. Degiro also offers a wide selection of ETFs – many of which contain FAANG stocks. Although the broker is popular in the UK, there are a couple of drawbacks to consider.

Firstly, Degiro does not accept debit/credit card and e-wallet payments. Instead, you can only deposit funds via bank transfer. While this might suffice for some of you, this does mean that your deposit will take several days to process. Additionally, Degiro is not regulated by the FCA and your funds are not covered by the FSCS. Instead, the broker is supervised in the Netherlands.

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Conclusion

In conclusion, FAANG stocks led the way in 2020. In a year that was otherwise challenging for most sectors and industries, these large-cap tech stocks rewarded investors handsomely.

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