In my recent articles I mentioned that I was not particularly interested in buying Facebook (FB) or Google (GOOGL) on the dip. And this week – now that the “FANG” stocks have fallen even further – I wanted to dig a little deeper and explain why.
One factor that I always use to assess a stock is buying pressure. In other words: Is the stock experiencing positive momentum from big money on Wall Street rushing in? Or is this “smart money” rushing out?
That is, essentially, what my proprietary Quantitative Score tells you. Here’s a snapshot from my Portfolio Grader so you can see exactly how the FANG stocks measure up.
The talking heads on TV are still happy to shout all day long about these stocks – good or bad – as long as people continue to tune in. But, as you can see above, most of the FANGs have seen better days in terms of their buying pressure.
Fundamentals count, too — they play a big role in a stock’s rating, as they have a significant impact on its long-term success. And FB and GOOGL look particularly weak at this time.
I am still proud to have been an early bull on Google, just a few months after it IPOed, when its earnings growth caught my eye. But nowadays, well…GOOGL’s Report Card tells a very different story:
Still today, the sales growth is fairly strong. But earnings, not so much. With negative earnings surprises, subpar earnings growth and extremely poor earnings momentum – it’s no wonder GOOGL is suffering downgrades from Wall Street analysts.
Facebook is seeing a similar disconnect. Social media might run the world, but when it comes to your stocks, you’ve got to think not as a consumer, but as an investor. And Facebook’s fundamentals simply aren’t up to snuff at this time. Portfolio Grader tells the tale:
If you go off of FB’s sales growth, you might be tempted. But take a look at that earnings data. You can’t forget the negative earnings surprises, (lack of) earnings growth and terrible earnings momentum when you’re making your buying decision on FB. (That’s even before you get to the weak operating margin growth and cash flow.)
At times like this, it pays to do your homework on these stocks. The “gurus” on TV might be shouting down FANG stocks now, when they’ve plunged well off their highs. But soon they might be singing a very different tune. However, in the long run it never pays to buy into this hype. (On the flip side, certain others of the FANGs are making some moves I certainly DO approve of. I’ll be covering that in the coming days.)
Ultimately, if I owe my own success to anything, it’s my commitment to momentum and fundamentals — not hopes and dreams. And Portfolio Grader helps us stay focused on what counts.
At the end of the day, what you want is growth. And if you’re looking for growth, you can’t go wrong with highly rated, small-cap growth stocks. That’s where Google was when I was among the first to recommend it, nearly 15 years ago. And I see similar opportunities today.