A lot of attention has been paid to the so-called FAANG stocks over the past few years, and for good reason.
It has been a great run for those stocks, with reliable outperformance. But in 2018, things are starting to look dicey.
Facebook has cratered 20% from its highs after a “breach of trust” with its users in the wake of its data-mining scandal.
Apple hasn’t budged since October on fears its iPhone has hit critical mass.
And Google has struggled for even longer, failing to break out of a range of around $1,000 a share since a massive $2.7 billion fine from European Union regulators last summer.
This volatility has caused investors to rethink where to put their money in the tech sector. But the problem is, few narratives are as compelling as those of the FAANGs, even after recent troubles.
Allow me, then, to offer an alternative via the “WNSSS” — pronounced “wins,” for all the winning you could do with these picks. This group of stocks consists of five high-growth companies that could be dominant players in the future, the same way old Big Tech favorites defined the tech sector in the past few years.
In fact, they already have proven they can hang with the FAANGs. Since Dec. 31, 2014, this group of five stocks has surged — between 140% and 1,059%.
Or put another way, if you put $10,000 in each of these WNSSS stocks at the beginning of 2015, you would have more than $312,000 today. That same investment would have yielded about $165,000 in the FAANGs.
Here are the total returns for the FAANG companies:
|Company||Ticker||Total return – Dec. 30, 2016 – March 27, 2018||Total return – Dec. 31, 2014 – March 27, 2018||Value on March 27, 2018, of $10,000 invested on Dec. 30, 2016||Value on March 27, 2018, of $10,000 invested on Dec. 31, 2014|
|Facebook Inc. Class A||
|Alphabet Inc. Class C||
And here are the returns for the WNSSS companies:
|Company||Ticker||Total return – Dec. 30, 2016 – March 27, 2018||Total return – Dec. 31, 2014 (or end of first day of trading) – March 27, 2018||Value on March 27, 2018, of $10,000 invested on Dec. 30, 2016||Value on March 27, 2018, of $10,000 invested on Dec. 31, 2014 (or at end of first day of trading)|
|Weibo Corp. ADR Class A||
|Shopify Inc. Class A||
|Square Inc. Class A||
(Shares of Shopify Inc. were first traded publicly May 21, 2015. Shares of Square Inc. were first traded publicly Nov. 19, 2015.)
The WNSSS span similar areas as popular tech stocks, including hardware, social media and e-commerce. But they are not exactly household names — at least not yet.
Here’s my list of the WNSSS, a vaguely pronouncable acronym for five emerging tech stocks that just keep winning.
• Performance in 2018: 10% vs. 2% for the S&P 500 Index
The FAANG stocks have struggled in recent years to access the Chinese market. But their loss is the gain of internet and social-media stock Weibo, which has become a force in the nation’s fast-growing tech sector.
How much of a force? Analysts who cover Weibo predict better than 55% revenue growth this fiscal year and another 40% next year. And unlike Twitter
to which the micro-blogging platform is so often compared, Weibo is handily profitable, with projections of $2.80 in earnings per share (EPS) this year, up 55% from fiscal 2017.
User growth at Weibo is equally impressive, with its report at the end of 2017 noting 376 million users, up 33% from the previous year, for an audience bigger than Twitter’s. And the market is not even close to saturated with reportedly 700 million mobile internet users in China, according to Kleiner Perkins.
Sure, Weibo got here by kissing the ring of Chinese power brokers. It regularly censors political speech at the behest of Beijing, and has big ownership stakes from both Sina Corp.
and Alibaba Group Holding Ltd.
But as Peter Thiel famously wrote, competition is for losers in the tech sector. And if this growth keeps up, there’s a very good chance that Weibo will be giving Facebook a run for its money in a few years as the de facto social-media force on Wall Street.
• Performance in 2018: 26% vs. 2% for the S&P 500.
If you haven’t heard about the success story of Nvidia in the past two years, you’ve been living under a rock. And if you haven’t considered that this high-growth hardware company is going to give the current tech leaders a run for your money, you aren’t seeing the big picture.
Nvidia got plenty of press as the go-to hardware for cryptocurrency miners. But that flashy area of its business isn’t the only thing going on right now. Its autonomous-driving software is one of the leading artificial-intelligence platforms for self-driving cars, and its data-center technology powers cloud-computing services of all shapes and sizes. And let’s not forget that this is the company that pretty much invented the high-end graphics processors that any serious gamer or media consumer demands in a device. In other words, Nvidia has a footprint in just about every buzzworthy trend in tech.
It’s not all narrative, though, with Nvidia tracking 27% revenue growth this year and 35% profit expansion, after 41% revenue growth in 2017 and 88% profit growth last year.
If Apple owned the conversation about hardware and mobile tech a decade ago, then Nvidia owns that conversation in 2018.
• Performance in 2018: 31% vs. 2% for the S&P 500.
ServiceNow may not be a household name but is rapidly emerging as one of the leaders in cloud-computing and service-management tools. This corner of enterprise tech is very lucrative as businesses of all sizes look to streamline their workflow, and to analyze data to increase efficiency and productivity.
Investors who haven’t been paying attention may be surprised that ServiceNow is valued at over $20 billion with $2.5 billion in revenue expected this year. That figure will be up 32% over 2017, too, and is projected to grow another 29% in 2018 on top of that.
That’s because this company is the industry leader in IT-service management. Founded in 2004 by the former CTO of Peregrine Systems, which was acquired by Hewlett Packard Enterprise
this is a company run by top Silicon Valley talent and is at the forefront of enterprise tech and cloud computing.
And unlike other mid-sized tech companies that struggle to book material earnings, ServiceNow is handily profitable. Its EPS should grow 68% this fiscal year, and is expected to climb another 50% in fiscal 2018.
• Performance in 2018: 54% vs. 2% for the S&P 500.
Square Inc. is not the only mobile-payment option out there, but it is certainly one of the leaders. The company has long prided itself on being the de facto payment option for local coffee shops and food trucks, but increasingly it has been forging partnerships with large businesses that book over $500,000 annually on the platform.
Back in 2015, for instance, only 13% of merchants on Square had a half million in payments. Now, even after big growth in the intervening three years, a full 20% do.
This is a win-win growth story that investors should love, with a company profiting as it helps its customers grow too. Overall, gross payment volume on the platform grew 30% last year to roughly $18 billion in total transactions, and revenue grew at an even faster clip of 36% to hit $616 million. The company is still operating at around break-even, but its continued growth and recent efforts to move into financial services like small-business loans is a tremendous opportunity to create a profit center tailor-made for the 21st century.
While the performance of Square since its 2015 IPO has been stellar, it has shown no signs of slowing, with a phenomenal 220% gain in the past 12 months alone, and a 54% increase in 2018 that makes it a better performer than any other large-cap tech stock, including every one of the FAANGs.
• Performance in 2018: 35% vs. 2% for the S&P 500.
The final S in our WNSSS winners is Shopify, the smallest tech stock on this list at just under $14 billion or so in market value but one with tremendous growth potential.
Shopify has been one of the runaway favorites of the past 12 months, doubling since March of last year and surging in 2018 even as the rest of the tech sector seems to be in big trouble lately. That’s because Shopify is a clear winner in an age where everyone is looking to get a piece of the e-commerce pie. As the company likes to say on its website, “Whether you sell online, on social media, in store, or out of the trunk of your car, Shopify has you covered.”
In many ways, this is the most compelling growth story of 2018. Because as the economy becomes increasingly decentralized, via the “gig” economy or through the rise of niche internet businesses like microbrews or bespoke clothiers, the one thing all these next-generation businesses need is an e-commerce engine to make their operations a going concern.
Sure, Amazon is Amazon. But there is a great, big world of small businesses out there, and these businesses are powering Shopify’s continued growth.
That growth includes a projected 48% expansion of the top line this year, and another 37% in fiscal 2019. All the while, Shopify looks to become profitable this year and start generating reliable earnings over the next 12 to 18 months.
This is perhaps the only company that really knows how to compete with Amazon. And given the massive run-up in shares, Wall Street is confident that this company isn’t just a flash in the pan.
View more information: https://www.marketwatch.com/story/if-the-faangs-have-got-you-down-its-time-to-win-with-the-wnsss-stocks-2018-03-29