Opinion: Looking at the important data from the FAANG+ group, this stock stands out

It’s been a tough year for tech stocks, but smart long-term investors often look for bargains. Why not buy quality goods while on sale?

The FAANG stock group is well known, but listing companies becomes complicated when they change their names. The group is owned by Facebook holding company Meta Platforms Inc. Includes META.,
Apple Inc. AAPL,
Amazon.com Inc. AMZN,
Netflix Inc. NFLX
and Google holding company Alphabet Inc. GOOGL

GOOG.

Given that the acronym FAANG stands for providing a simple generic label for “big technology,” Microsoft Corp. Adding MSFT makes sense.
to the list – after all, its annual revenue dwarfs that of Netflix and is the second largest in the S&P 500 SPX
with market value.

And if we’re going to add Microsoft, Tesla Inc. We can also discard TSLA.
because investors have such interest in the company – it’s the fifth largest company in the S&P 500.

Among these seven stock groups, Alphabet offers a compelling combination of low valuation for expected profit and high expectations for growth in sales and earnings through 2024.

The FAANG+ group, sorted by market cap, with current futures price-earnings (P/E) ratios, P/E ratios as of December 31, 2021, and price changes from year-to-date through October 24:

Company	stock	Market value. (billion dollars)	Ranking by market cap on the S&P 500	2022 price change	Forward F/C	Forward P/E – December 31, 2021
Apple Inc.	AAPL	$2,402	one	-16%	23.2	30.2
Microsoft Corp.	MSFT	$1,844	2	-26%	23.4	34.0
Alphabet Inc. To class	GOOGL	$1,340	3	-29%	17.7	25.4
Amazon.com Inc.	AMZN	1,221$	4	-28%	65.1	64.9
Tesla Inc.	TSLA	667 dollars	5	-40%	38.2	120.3
Meta Platforms Inc. To class	META	$296	17	-61%	12.4	23.5
Netflix Inc.	NFLX	$126	55	-53%	27.0	45.6
S&P 500	SPX			-20%	16.3	21.5
Source: FactSet

Click through for more information on each company, including the full coverage of news and financial reporting. Click here for Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch offer page.

Forward-looking P/E ratios for the S&P 500 are also included for comparison. At the end of 2021, the entire FAANG+ group traded at much higher P/E valuations than the index did. But now, after double-digit price drops in 2022 for the entire group, the Meta is trading at a much lower valuation than the index. Alphabet trades just slightly above the index’s P/E.

And that underscores what could be seen as a golden buying opportunity for Alphabet stock years from now.

Over the past 10 years, Alphabet’s Class A shares (the shares were split into Group A and Group C in 2014 and only Class A shares have voting rights) have been traded on P/E with futures ranging from 14.1 to 32.8. 22.6 P/K according to FactSet.

As the second cheapest stock by P/E on the FAANG+ list, the question is, what is expected in the future?

Take a look at the expected compound annual growth rates (CAGR) for sales and earnings for the group through 2024. Figures are based on calendar year consensus estimates among analysts surveyed by FactSet. (Some companies have unscheduled fiscal years):

Company	stock	Estimated two-year sales to 2024 CAGR	Estimated EPS CAGR for two years until 2024
Apple Inc.	AAPL	4.4%	5.6%
Microsoft Corp.	MSFT	13.2%	15.9%
Alphabet Inc. To class	GOOGL	11.2%	14.7%
Amazon.com Inc.	AMZN	14.5%	954.4%
Tesla Inc.	TSLA	36.7%	34.7%
Meta Platforms Inc. To class	META	9.9%	12.4%
Netflix Inc.	NFLX	9.2%	13.7%
Source: FactSet

Some notes on this data:

• Apple has the lowest expected sales and EPS CAGR through 2024. This partially reflects Apple’s size, market share, and slowing replacement cycles for its products. In addition, Apple has been at the top of the list of the best performers among the S&P 500 in the last 10 years, based on returns on invested capital. Investor confidence in the company’s financial management can be seen in its relatively high P/E (first table).

• Amazon is expected to show a triple-digit CAGR for earnings through 2024 due to distortions in earnings from one-time events and the company’s habit of driving most of its earnings back into the business to fund continued expansion. This makes the company’s P/E less meaningful than it does for other companies.

• The Meta is trading with the lowest P/E on the list – the worst performance of the group this year as investors try to ponder CEO Mark Zuckerberg’s focus on virtual reality platforms. The Reality Labs segment provided only 1.6% of the company’s revenue in the second quarter.

• Netflix was the second worst player on the list in 2022. The company had a super high P/E at the end of 2021 and is going through a strategy transition by adding ad-supported streaming packages from November.

• Tesla’s F/E has dropped from a stratospheric level of 120.3 at the end of 2021 to 38.2 this year. This remains a fascinating story as CEO Elon Musk focuses on his pending acquisition of Twitter Inc. TWTR,
  Investors and customers hope Cybertruck can be purchased in 2023. Musk said on an October 19 conference call that Tesla is in the “final stages” of building its pickup truck assembly line in Austin, Texas.

Alphabet may face further declines during this market and economic cycle, as the company prepares to announce its third-quarter results after the October 25 close, amid short-term concerns about slower revenue growth.

But the combination of Alphabet’s low P/E and high expectations for its stable business to continue double-digit growth over the next two years makes it an attractive stock for long-term investors.

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