Is the FAANG trade dead? this pro says no
- Analyst says 'the idea that FAANG is dead is certainly not our case.'
- The FAANG companies are solid cash flow generating companies but they just happen to be all overpriced.
- Dividend growing companies offer a strong hedge against inflation both over the short- and long-term.
David Bahnsen, chief investment officer at The Bahnsen Group, was on CNBC to talk about whether the FAANG trade is dead and whether dividend growers offer a good hedge against inflation.
The moniker FAANG has been used to describe the big tech companies including Facebook Inc. (NASDAQ: FB), Apple Inc. (NASDAQ: AAPL), Amazon.com Inc. (NASDAQ: AMZN), Netflix Inc. (NASDAQ: NFLX) and Alphabet Inc’s Google (NASDAQ: GOOG).
FAANG trade is not dead
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Bahnsen questioned the treatment of FAANG components as one monolithic entity. He argued that on one side you have Facebook which is up about 25% this year and trading at 28 times earnings and on the other side you have Netflix which is down around 10% and trading at 70 times earnings.
“It’s such a disparate group at this time that I don’t think it’s acting monolithically anymore,” he said.
He further added that it’s ridiculous to think that these companies are going away but he thinks “that the idea of it being the hottest thing that is driving the stock market returns is coming to an end.” He expanded on that by saying that the FAANG companies are solid cash flow generating companies but they just happen to be all overpriced while commenting:
“The idea that FAANG is dead is certainly not our case.”
Dividend growers offer a good hedge against inflation
Bahnsen’s firm focused on investing in dividend growing companies and count IBM, Cisco and Intel among their current investments and added:
“We have to believe in the sustainability of the dividend and avoid dividend cuts at all costs.”
He said that with IBM, Intel and Cisco, they look at the free cash flow covering the dividend. These three companies have one thing in common — old mainline businesses that kick-off a ton of cash flow and have a catalyst for growth in the future at very low P/E ratios — which is not being appreciated by the market but the value will be recognized at some point.
Bahnsen talked about the protection that dividend growing companies offer against inflation both over the short- and long-term.
“They are the greatest inflation hedge of all time,” he said. “The ability for a good company to pass on the impact of inflation to its customers and then for the investors to receive that benefit in growing dividends is great. Dividend income portfolio should see its income going up 5-10% per year.”