This is an undeniably important factor for a trader to know the biggest and most influential companies. The performance of the entire stock market is driven by these firms. And they are known as the FAANG companies.
What are FAANG stocks?
FAANG companies are the ones that play a huge role in the performance of the stock market. Their size and power are quite immense. These companies are Facebook, Amazon, Apple, Netflix and Google (known on the stock exchange as Alphabet, which is its mother company).
The use of the phrase FAANG became widely popular thanks to well-known CNBC presenter Jim Cramer. He initially made reference only to FANG, omitting Apple from the list. Cramer then attributed the name to the technical analyst, Bob Lang, with whom he formerly worked.
Throughout the times, FAANG in particular has had a reference to five companies. However, the term can also refer overall to both large growth stocks in the tech and discretionary consumer sectors.
Why are FAANG stocks so important?
Knowing FAANG stocks is worthwhile not only for those traders who decide to invest directly in them. They constitute a high proportion of the entire stock market capitalisation and movements in their prices can affect the entire market.
The US stock market is estimated to be worth over $31 trillion. Before Facebook and Netflix became public companies in 2001 it was valued at $10.7 trillion.
Collectively, FAANG stocks were worth over $3 trillion in 2020. That means they represent at least a tenth of the value of the US stock market.
The S&P500 Index covers the 500 biggest US companies in terms of market capitalisation. Facebook, Amazon, Apple and Google are among them and rank in the top 10 (with Apple in the first place, Google in the fifth). The SPDR S&P500 ETF Trust, which represents the S&P500, recognises that there are over 20% of the index’s total value comprised of the 10 largest companies.
Hence, the movements of the price in FAANG stocks may easily affect the performance of the whole stock market.
Facebook was founded in 2004 and 8 years later went public. It has become the largest social media platform in the world. It had over 2 billion users in 2019. Its products expanded thanks to acquiring Instagram, WhatsApp, Oculus VR and others.
Amazon was founded in 1995 to sell books online. It has become the biggest online retail marketplace in the world. Moreover, the company holds a leadership position in cloud computing solutions via its Amazon Web Services (AWS) unit, music and movies online streaming and consumer electronics by developing the Kindle, Kindle Fire and Echo devices.
Some showed impatience at the start as the profits were coming slowly. But then they accelerated and the price of Amazon’s stock has tripled from the beginning of 2016.
The company has a long history dated back to the 70s and 80s when the personal computer has emerged. It still produces computers but almost half of the money comes from the sales of smartphones. Furthermore, the company receives income from apps, smartwatches, cloud storage, streaming music and television service.
Apple’s stock price has doubled from the beginning of 2016.
Netflix’s market capitalization is the smallest among the companies in the FAANG group. However, it is still one of the most prominent firms on Wall Street thanks to its rapid growth.
In 2002 Netflix went public. It offered a subscription service that allowed DVDs to be rented by mail. With time, it transitioned to streaming movies. Nowadays, over 150 million users are paying $8.99 to $15.99 monthly fee for the streaming service.
We cannot say Netflix is tremendously profitable as the company invest a lot in programming. Also, there was an abrupt increase in subscribers before, but then, in 2019 there has been a decrease in subscribers. Anyway, from the beginning of 2017, the share prices of Netflix have doubled. The first half of 2018 brought a rise in the share prices and the end of the year settling back down.
Google, Alphabet (GOOGL)
Google’s parent company is Alphabet. And Google is not only the best-known search engine in the world. It now also makes the smartphone and a wide range of investments in everything, smart cities, artificial intelligence car technology, biotech, to name a few. Moreover, the company is also the owner of YouTube, which is, after Facebook, the biggest social media platform.
Google’s stock price has doubled from the beginning of 2015.
Trading FAANG stocks
Obtaining shares of FAANG companies is not difficult. They are all listed on the New York Stock Exchange (NYSE) or NASDAQ.
Note, that shares of FAANG companies are quite expensive. A share of Amazon was selling for more than $1,500 in 2019, and Google for over $1,000.
There are other ways of trading FAANG stocks if you do not want to or cannot hold individual shares. Numerous mutual funds and ETFs will get you exposure to them. Some holdings in FAANG stocks will most probably have index funds that track the S&P500 or the broader stock market. Similarly, the funds that focus on the technology and communications sectors and large-cap funds will ensure such exposure.
It is always good to know what is going on in the financial world if you want to improve your trading performance. FAANG companies, that is Facebook, Amazon, Apple, Netflix and Google, are the biggest and the most influential ones. They have the power to affect other markets too.
You have a few ways of trading FAANG stocks. One is to purchase shares individually, another is to get exposure through certain funds and ETFs.
Remember to prepare well, make a profound analysis and develop a trading plan.
Wish you good luck!