What Are FANG Stocks and Why Does Jim Cramer Love Them?

  

NEW YORK (TheStreet) -- When most people hear the word fang, they think of Dracula.

Well, this isn't a story about the living dead, drinking blood or having Mr. Burns turn into Dracula to make The Simpsons into his army of the undead.

 

It's about stocks -- and some really good investments.

FANG, an acronym created by TheStreet's Jim Cramer a few years ago, is representative of four of the most popular and best-performing tech stocks in recent memory -- Facebook (FB), Amazon (AMZN), Netflix (NFLX) and Google (GOOG) (GOOGL).

Three of the four companies, Amazon, Netflix and Google have recently reported second-quarter results that have been more than well received by investors. Following earnings, shares of Netflix and Google rose 18% and 16%, respectively. Amazon shares are set to open 21% higher on Friday, after the company posted better-than-expected second-quarter results.

Netflix is in the midst of global expansion, adding subscribers at a breakneck speed, as it seeks to become the preeminent subscription-service content company on the planet, challenging the dominance of Time Warner's (TWX) HBO.

Google, on the other hand, has had some difficulties in recent quarters, with perception that the core business was slowing and it was having difficulty making money with mobile.

New CFO Ruth Porat, former chief of Morgan Stanley (MS), laid out a clear plan to investors that was well-received, highlighting the fact that Google was going to rein in costs. Omid Kordestani, Google's chief business officer, highlighted the increased usage of YouTube, particularly on mobile, amid fears people were leaving to watch videos elsewhere.

Amazon has demonstrated that its business model, which is to continuously expand into new areas for the sake of short-term profits, is paying off.

Thanks in part to its cloud computing unit, Amazon Web Services, Amazon generated earnings of 19 cents a share on $23.18 billion in revenue. Analysts surveyed by Thomson Reuters had expected a loss of 15 cents a share on $22.39 billion in revenue. Operating margins, a key concern for investors, were 2% in the quarter, up from 1.1% in the first-quarter and -0.1% in the year-ago quarter.

Facebook has become the dominant player in mobile advertising, with its 1.44 billion monthly active users and a plethora of services that can provide a clear path to strong revenue growth in the future -- Messenger, Instagram, WhatsApp and Oculus.

Palo Alto, Calif.-based Facebook is slated to report second-quarter earnings next week, with analysts looking for Facebook to earn an adjusted 47 cents a share on $3.98 billion in revenue, up 36% year over year.

It's not just Cramer who loves these names. Wall Street and investors are in love with them, too.

Looking at data compiled by Thomson Reuters, out of 50 analysts who cover Facebook, 17 rate the company a strong buy with 28 rating them buy. Forty-three analysts cover Amazon, with 12 strong buys, 22 buys and 8 holds. Forty-nine analysts cover Google, which has 16 strong buys, 23 buys and 10 holds, while 42 analysts cover Netflix, which has 8 strong buys, 16 buys and 14 holds.

The returns year-to-date for these four companies has been nothing short of impressive -- Facebook shares have gained 22%, Google's stock is up 27%, Amazon has jumped 55% and Netflix has obliterated them all, rising a robust 125%.

The next time you think of the word FANG, don't get scared. Get rich.

If you want to know more about FANG stocks, take a look on the next page at TheStreet's proprietary ratings for each of the stocks.

TheStreet Ratings, TheStreet's proprietary ratings tool, projects a stock's total return potential over a 12-month period, including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating more than 4,300 stocks to predict return potential for the next year. The model is both objective -- using elements such as volatility of past operating revenue, financial strength, and company cash flows -- and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecast company earnings.

Buying an S&P 500 stock that TheStreet Ratings rated a buy yielded a 16.56% return in 2014, beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a buy yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.

FB Chart
FB data by YCharts

TheStreet Ratings team rates Facebook as a buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate Facebook a buy. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, good cash flow from operations, expanding profit margins and solid stock price performance. We feel its strengths outweigh the fact that the company has had sub par growth in net income."

You can view the full analysis from the report here: FB Ratings Report

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AMZN Chart
AMZN data by YCharts


TheStreet Ratings team rates Amazon as a hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate Amazon a hold. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its solid stock price performance, robust revenue growth and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and feeble growth in the company's earnings per share."

You can view the full analysis from the report here: AMZN Ratings Report

Must Read: Warren Buffett's Top 10 Dividend Stocks

NFLX Chart
NFLX data by YCharts

TheStreet Ratings team rates Netflix as a hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

"We rate Netflix a hold. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, expanding profit margins and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and disappointing return on equity."

You can view the full analysis from the report here: NFLX Ratings Report

Must Read: 16 Rock-Solid Dividend Stocks With 50 Years of Increasing Dividends and Market-Beating Performance

GOOG Chart
GOOG data by YCharts

TheStreet Ratings team rates GOOG as a hold with a ratings score of C- and GOOGL as a buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation: 

"We rate Google (GOOG) a hold. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and reasonable valuation levels. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and a generally disappointing performance in the stock itself."

"We rate Google (GOOGL) a buy. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels, expanding profit margins and good cash flow from operations. We feel its strengths outweigh the fact that the company has had somewhat disappointing return on equity."

You can view the full analysis from the reports here: GOOG Ratings ReportGOOGL Ratings Report

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