Mega-cap FANG stocks are 'acting like death' and entering value territory amid broad sell-off, Fundstrat says
Andrew Kelly/Reuters
- Growth-oriented mega-cap FANG stocks are entering value territory, Fundstrat's Tom Lee said.
- Alphabet, Meta Platforms, and Netflix are all trading at a discount to the broader stock market.
- "If FANG is reasonably valued, not sure there is a case for stocks to have significant further downside," Lee said.
The mega-cap tech stocks that have been synonymous with growth over the past decade are "acting like death" as they begin to enter value territory, Fundstrat's Tom Lee said in a note on Monday.
Massive earnings-related declines from Netflix and Meta Platforms have helped drag down enthusiasm for the big tech companies as they all struggle to tread water. But the weakness is not limited to just them.
While Netflix and Meta are down 64% and 45% year-to-date, Nvidia is down 34% and Microsoft and Alphabet are down 18%. The best performing FANG stocks are Apple and Amazon, which are down 9% and 13% year-to-date, respectively.
Such broad declines, coupled with continued growth in the tech companies' underlying earnings, mean their valuations are starting to get cheap, Lee observed.
Specifically, Alphabet, Meta, and Netflix are all trading at a discount to the S&P 500's forward price-to-earnings multiple of 18.6x and the market's enterprise value-to-EBITDA multiple of 20.5x.
Those valuation discounts get even bigger when you factor in the balance sheets of mega-cap tech companies and back out their piles of cash, according to Lee.
Meta in particular is among the cheapest FANG stocks, and Lee estimated that if the social media platform initiated a dividend of about a third of its EPS, it would be $5.33 and sport a 3% yield. That's higher than the current 10-year US Treasury yield of 2.81%, Lee highlighted.
The relative value of mega-cap tech companies, which have been categorized as growth stocks and traded at lofty valuations for more than a decade, means that further declines in the broader stock market could be limited.
"Lot of 'value' in FANG...[and] while valuations never mark a bottom, they do give us a sense of risk/reward," Lee said. "Bottom line, if FANG is reasonably valued, not sure there is a case for stocks to have significant further downside."