2 FAANG stocks to buy and 1 to avoid in 2024

The stock market has soared over the past decade.He invested $10,000 in a market tracking fund like Vanguard S&P 500 ETF (VOO -0.27%) At the beginning of 2014, the stock is now worth $29,673, growing at a compound annual rate of 11.6%, assuming dividends are reinvested along the way.

But a small group of elite stocks, known as the FAANG group, delivered even stronger returns. Over the past 10 years, an equal weighted and dividend reinvested portfolio of these five stocks would have increased him from $10,000 to $89,051. That’s an impressive average annual growth rate of 24.7%. The performance of the FAANG portfolio S&P500 (SNPINDEX: ^GSPC) The tracker topped the list in five years and underperformed in the other five years, but its strong results in 2015, 2020, and 2023 outperformed its weaker 2022 period.

For those who are not familiar with FAANG, let me explain. Here we will discuss the following well-known companies:

• meta platform (meta -1.22%)formerly known as Facebook,
• apple (NASDAQ:AAPL),
• Amazon (NASDAQ:AMZN),
• Netflix (NFLX -0.74%),
• aalphabet (GOOG -0.25%) (Google -0.39%)Google’s parent company.

Among these top stocks, the slowest increase over the past 10 years was for Alphabet, at 400%. At the other end of the spectrum, Apple led with his 867% share price increase. The Cupertino-based iPhone maker is also the only dividend payer in the group. If these dividends are reinvested, the investor’s total return on his Apple stock will rise to 1,000% after 10 years.

But even membership in this exclusive club doesn’t always make for an uncontroversial purchase. At the moment, he believes there are two good investment opportunities in this for 2024, one of which investors should avoid until further notice.

No doubt FAANG buys No.1: alphabet

Google’s parent company suffered a significant decline in 2022. The company was hit by a volatile global economy and a downturn in the digital advertising market, with both dual-class share types down as much as 42%. Overall, Alphabet’s stock price has barely declined over the past two years, posting a 3% loss.

However, growth that previously stalled is now picking up again. Alphabet’s trailing 12-month revenue is now $297 billion, up from $258 billion in fiscal 2021. If you want to think in percentage terms, this is a 15% increase. Free cash flow for the same period increased from $67 billion to $78 billion, an increase of 16%.

Above all, Alphabet’s future is bright. The advertising market is recovering from the slump caused by inflation. Google Cloud is a leading provider of cloud-based access to powerful artificial intelligence (AI) tools and also designs its own AI accelerator microchips.

As a result, Alphabet’s stock chart stalled, while its business reignited waning growth. These days, Alphabet stock is held at a modest valuation of 27 times trailing earnings and 23 times free cash flow. These measures are below their long-term averages, indicating that Alphabet will remain important over the long term. So now seems like the perfect time to pick up Alphabet stock cheap.

FAANG will buy #2 without hesitation: Netflix

Even if Alphabet takes a beating in 2022, the market has put Netflix behind the woodshed to take a proper hit. The streaming video pioneer’s stock has fallen as much as 72% in the last year, and despite a strong rebound, Netflix is ​​still 19% below where it ended 2021. After a short period when its investment theme was a horror story, the company is starting to look more and more like a company. Healthy family-friendly features are back and worth investing in a lot.

The problem is that the huge drop that happened in 2022 never made sense to me. Investors essentially punished Netflix for doing exactly what they expected, with a new focus on margins and profitable revenue growth. Management’s increased desire for profitability has come at the expense of slower customer growth, which was once featured as the most important number in Netflix’s quarterly reports. Old habits die hard, and the market’s reaction to Netflix’s latest strategy was brutal.

Netflix stock has now nearly tripled since its multi-year low in mid-2021. The most obvious opportunity to take advantage of the buying season is already at hand. Still, Netflix seems to me to be a solid buy, with a reignited growth engine and modest valuation ratios. Notably, Netflix’s stock price is lower than it’s ever been on a price-to-free cash flow basis, the exact financial metric that the company’s critics have complained about the most.

There may be a slight dip in cash flow in 2024 as Netflix’s content production projects get back on track after the 2023 writers’ and actors’ strike, but the long-term trend is clear. Netflix is ​​no longer looking for customers at all costs. Instead, the company is optimizing cash flow and profits, even at the cost of slower subscriber growth. I have no problem with that switch, and I think ultimately Wall Street as a whole will embrace it as well.

Until then, I think you can buy Netflix without hesitation.

FAANG stocks to avoid in 2024: Metaplatform

I’m not here to deny meta-platforms, but the operators of Facebook, Instagram and WhatsApp don’t feel like buying them right now.

It will be years before the company’s all-out bet on the Metaverse pays metaphorical dividends. Reality Labs’ revenue represents a rounding error in Meta’s overall financial structure, accounting for 0.6% of total sales in its most recent third quarter report. However, management is fully focused on its potential growth drivers. His $210 million in revenue for the third quarter was accompanied by a $3.7 billion operating loss for his Reality Labs division.

But the company beat Wall Street’s revenue expectations in three of its four earnings reports this year, and investors see Mark Zuckerberg’s business as a promising AI innovator. In other words, the stock price rose 198% in 2023, almost canceling out the price decline in 2022.

“Hold on, Anders,” I hear you say. “Isn’t this the same story with Alphabet, which has experienced similar stock price trends and advertising quirks over the past two years? If you like Alphabet, you’ll love Metaplatform.”

Well, I can see the similarities, but the meta situation is very different from the alphabet situation. The company formerly known as Facebook may have some ideas for AI, but it doesn’t match Google’s decades of AI expertise or the depth of its AI-infused Google Cloud services. It doesn’t spread. And if AI is to save the Meta from the morass of slow growth, then heavy spending on Metaverse projects must be seen as a costly distraction.

In summary, Metaplatform looks like a momentum stock right now, but I’m not convinced that AI will be a game-changer for the company. If the broader market comes to the same conclusion, Meta’s stock could suffer a painful price correction. Until then, I think it’s best to stay away from this overheated social media stock, even if it’s part of the market-beating FAANG group.