I’m not going to sugarcoat it for you: Monday was a very, very bad day for the FANG stocks. Facebook (FB), Amazon (AMZN), Netflix (NFLX) and Google (GOOGL) were all pummeled. Facebook, which took the biggest hit, fell 9.3%, Google fell 7.2% and briefly into bear market territory, while Netflix dropped 3.1% and Amazon 5.8%. The selloffs were largely due to news of potential antitrust investigations and breaking up the companies.
On Monday, the U.S. House of Representatives Judiciary Committee said it was beginning a “top to bottom” review of the tech industry. Rumors that the Department of Justice and the Federal Trade Commission came to an agreement to divide up the labor of investing Google and the other FANG stocks also did not help.
Time will tell how these investigations play out, and I’m sure not going to buy into those rumors. Instead, I’m staying laser focused on what’s truly important: the underlying fundamentals.
We spoke on Tuesday about how I was not particularly excited about buying Facebook or Google during Monday’s selling. As I stated, in my Portfolio Grader both companies had poor Quantitative and Fundamental Grades. Remember, the Quantitative Grade measures a stock’s buying pressure. Think of this as “following the money.” The more money that floods into a stock, the more momentum a stock has to rise. In this case, both stocks held a C-rating.
The Fundamental Grades weren’t looking so great, either. Both stocks received a C-rating here, too. Fundamentals are important, as they tell us about a company’s sales growth, earnings growth and the like. Growing companies are companies that are healthy and thriving. They have smart leaders who know how to run and manage a smart business. If a company is struggling to sell its products or is spending more than it makes, it’s not a company that you want to own for growth. Given these grades, as well as the fact that Facebook’s Total Grade is a D, which makes it an automatic sell, the weakness on Monday was not a good opportunity to buy the dip.
Amazon is a different story. As you can see below, it receives a B-rating for both its Fundamental and Quantitative Grade, meaning it continues to see solid buying pressure and has solid underlying fundamentals to drive the stock higher over time.
The solid fundamentals aren’t surprising. The company reported a stunning first quarter in April, smashing analysts’ earnings estimates by 50.2%. The online retailer reported that its Amazon Web Services business continues to add to the company’s top and bottom lines. It achieved $7.7 billion in sales in the first quarter, which translated to 42% annual growth.
Amazon reported total sales of $59.7 billion, up from $51.04 billion in the same quarter a year ago. That topped analysts’ estimates for $59.65 billion by a hair. The company also noted that earnings per share surged 116.8% year-over-year to $7.09, which beat estimates for $4.72 per share.
But as I said, a good company must have a smart leader, and Amazon certainly does in Jeff Bezos. What I like right now is that he is looking to capitalize on the 5G trend. As you may recall, 5G is spreading like wildfire. It’s making waves in the U.S. and has now gone across the pond to the U.K. This technology is a big deal because it brings cable, modem and internet speeds to the air. So, in the near future you won’t need a cable modem to download and stream movies.
Reuters has reported that Amazon is working to get itself a piece of the 5G pie. The company is considering acquiring Boost Mobile, which will be sold by T-Mobile (TMUS) and Sprint (S) as part of the wireless carriers’ plans to receive regulatory approval of their proposed $26.5 billion merger. This would give Amazon access to the combined company’s wireless network. In turn, it would give Amazon an opportunity to really tap into the 5G space and potentially take on the bigger wireless carriers, like AT&T (T). So, this would be a very smart move.
By purchasing Boost Mobile, not only would Amazon enter the wireless market but it would allow the company to improve its cloud systems and have more control over the services it already offers, such as Amazon Prime. And 5G devices that are connected to the cloud could allow Amazon to sell a full suite of products for customers who want to build 5G services and give it an edge over competitors.
Amazon has come a long way from its days selling books in 1998 to an ecommerce giant today with a hand in just about every tech space. Any foray into 5G, which I am confident will revolutionize the internet, should really get it firing on all cylinders.
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