Is the FAANG trade dead? this pro says no

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

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. 

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:

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:

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.