FANG Stock Returns

7 Next Generation FAANG Stock to Buy Now

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Finding the next FAANG stock means knowing where to look and the innovative companies to change the world

You’re kicking yourself for not investing in Netflix and that 6,000% return over the last decade. You sold out of your Amazon stock too early, missing out on the 10-fold return it’s produced in the last five years.

In this video, I’ll show you how to find the next generation of FANG stocks, the companies that will change your world and could make you rich. I’ll share the clues I look for in innovative companies and then reveal seven stocks to buy that could produce returns of 10-times your money and more.

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Why the List of FANG Stocks isn't Your Best Investment Anymore!

Nation, the returns on FANG stocks have been unbelievable. That’s Facebook, Apple, Netflix and Google and usually includes Amazon. Just looking at a chart of returns over the last ten years is physically painful, knowing you missed out on that kind of investment.

FANG Stock Returns
FANG Stock Returns

The FANGs produced an annualized 37% return over that period, more than five-times the 7% annual return on the stock market. Hell, even Google with its miserable 377% return over the decade was double the market return.

A single $1,000 investment in Amazon in 2010 would now be worth over $22,000!

That’s the kind of investment that can fund your entire retirement in just 10 years!

But you missed out…and when I say you, I mean me as well. It’s technically impossible for these stocks to reproduce that same kind of return. For shares of Apple to increase another 1,300% it would have to grow to a $26 trillion company…larger than the entire U.S. economy.

Put another way, at the current price-to-sales on shares, Apple would have to make $3.7 trillion selling an iPhone to every single person on earth!

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How to Find the Next FAANG Stock

But we can learn from the FANG stocks, look at how investors made those 10X returns and that’s what I want to show you in this video. I’m going to show you the sectors and industries most likely to grow the next generation of FANG stocks. We’ll look at some clues to finding the next stocks to buy. Then I’m going to reveal seven stocks to watch for those ten-fold returns over the next decade.

Now understand, I’m not saying the FANGs are going to be bad investments over the next decade. I own shares of Amazon and Google and all five of these companies are dominating their market…but if you want those quadruple-digit returns, it’s not going to be in these names. Bagging ten-times your money means being ahead of the game and finding the next generation.

So I want to jump right into these next generation FANG stocks and just working through this list is going to give you an idea of where to find them.

First up is $3.1 billion PuralSight, ticker PS, an AI driven skills development platform that touches a lot of developing trends.

The company runs a skills development platform of online courses on tech subjects like cloud, security and data, everything a business needs and the beauty of this is the proprietary machine-learning assessment tool helps businesses know which skills their employees need to work on.

So we’ve got an algorithmic-based functionality, we’ve got online skills development which obviously hugely important lately and an addressable market that gives the company a runway for decades of growth. PluralSight booked $317 million in revenue last year, an increase of 35% over the prior year which, in turn, was 39% growth over the year before that. That’s still just a fraction of the $42 billion market for business technical skills development and the $300 billion-plus global eLearning market.

Giving me even more confidence in the company is the fact that growth in the large customer segment has increased. PluralSight has grown customer accounts in the million-plus billings segment 122% over the last three years.

The company has a solid balance sheet with $406 million in cash against $567 million in debt, so that financial survivability we like to see, and very nearly cash flow positive.

Next here is $2.3 billion Stitch Fix, ticker SFIX, and more of that consumer retail idea but with a disruptor twist.

Stitch Fix is an online fashion service that touches on a lot of disruptive ideas. It’s on online retail service, which we know is bringing billions of dollars from the traditional brick-and-mortar model every year. The company estimates the online apparel market at over $111 billion in the U.S. and the U.K. alone and that’s just a quarter of the total market. Online sales are expected to grow by 13% a year to over $200 billion by 2024.

Stitch Fix isn’t a retailer though, it’s using data-driven algorithms and human intuition to help match people with their perfect look. Customers create a profile that assesses their preferences and matches them with a stylist, then powers the retail services and delivering the products.

The company booked 18% client growth last year and two consecutive years of 25%-plus revenue growth. So not only are they growing the client base but their making more per client.

The company reported a 9% increase in active clients to 3.4 million in the March through May quarter, and while net revenue was down slightly to $371 million, it was a great quarter considering the broader apparel and accessories market saw sales fall as much as 80% over the period. Definitely the kind of disruptive technology we’re looking for.

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Sectors and Industries for the Best Investments

So you see in these first two picks and in the ones coming up, we’re going to be sticking with two sectors of the economy, technology and communication services. That’s not to say we won’t have high return stocks in other sectors but the margins and growth is clearly in IT and connectivity.

Within these two sectors, we also want to be focusing on a group of industries, those with the most potential for disruption and innovation. Here we’re talking about industries like DNA sequencing, robotics and AI, healthcare IT, the Internet of Things and augmented reality.

Now a lot of these have gotten a boost from the new lockdown reality so don’t expect any of these stocks to be cheap. Amazon reported earnings of just $1.25 per share in 2015…while the stock price was trading upwards of 500-times that, so this definitely isn’t going to be a bet for value investors.

But just like those shares of Amazon that have surged 600% in the last five years, if you get that growth behind these disruptive technologies, they can just keep rising even from the high PE ratios you’ll see.

Crispr Therapeutics, ticker CRSP, is a $7 billion gene-editing company that as an old man…I am definitely interested in seeing what they can do.

Nation, in the hundred years to 1900, the average life expectancy in America barely budged, adding less than 10 years onto the average person’s lifespan. In the hundred years to 2000, it almost doubled to 80 years old.

We’ve seen the power of biotech in not just prolonging life but the quality of life and we want more!

Crispr uses patented technology enabling directed changes to genomic DNA, technology that could someday allow us to remove the parts of our genes causing cancer, diabetes or even turning back the clock on aging.

The company has a strong pipeline including collaborations and wholly-owned techniques, five of which are just one step from being marketed products. This is moon-shot stuff and Crispr is the leader in the space.

Now there isn’t much there for revenue or earnings, as you’d expect of a early-stage biotech, but the company has $945 million in balance sheet cash and just $50 million in debt, so a pristine balance sheet and all the cash it needs to see some of this research through to sales.

Those of you in the Bow Tie Nation will recognize this one, $9 billion Fastly, ticker FSLY.

I first recommended Fastly back in November and then again in March when it hit $11 a share. It surged to $109 per share before giving back 18% lately after it disclosed TikTok as its biggest customer for 12% of revenue.

I think it’s an opportunity to pick up more shares, even after that 800% return we booked since March. Fastly operates a cloud platform for content delivery which is just a fancy way of saying it helps get websites and the internet to you faster. It also provides streaming and video services which puts it right in the middle of the biggest themes in internet and media and a $35 billion market opportunity from its two segments.

And while the quarterly earnings sent the shares lower, there was still a lot to like. The company swung to a net profit which is always great proof of the business. Revenue jumped 62% from the prior year to $75 million and it’s expecting to match that in the third quarter. Analysts are expecting full-year revenue around $297 million this year to double to $614 million by 2023.

The company’s revenue retention rate is amazing at 99.3% and not only are customers sticking around, they’re also spending more with 133% growth in the expansion rate in the first quarter.

Is it expensive at 48-times on a price-to-sales basis…yeah but you don’t get that kind of growth and a key disruptive market for cheap. I’ve owned these shares since November and will pick up more after the selloff.

Next here, Medallia, ticker MDLA, is a $4.4 billion AI-driven software as a service platform that’s deep into the biggest changes in tech.

Medallia runs a cloud service that captures experience data from employees and customers. It’s AI-driven software collects the data across human, digital and internet of things devices then analyzes it for business insight and marketing.

And I know a lot of this tech jargon probably doesn’t mean much but one of the biggest trends over the last several years is just the collection and use of data. What you do online and how companies use that data to sell more efficiently, to create targeted products, to be more profitable. Medallia goes beyond what we see from others in the space with its AI-driven software and connection with that internet of things theme as well.

The company grew customer count by nearly 40% over the last year and is quickly approaching that point where they become the go-to name in the industry. Revenue has grown by 20%-plus over the last two years and is expected to reach $549 million by 2022.

Not only does Medallia continue to grow revenue by that double-digit rate but it’s becoming more efficient as well. The operating margin improved from negative 15% last year to just 1% shy of break even this year, so another company on the edge of profitability.

Start with Small Cap Stocks for the Next FANG Stock

We’ve still got two more FANG stocks but some other factors you want to watch for looking for that next generation. You want to screen for small cap companies, so those with a market size under $3 billion, or at least those under $10 billion.

Now I know Apple and Facebook have been the exception but you’re really fighting against the law of large numbers here. It’s much easier for a $5 billion company to grow into a $50 billion giant than it is for something like a $230 billion Disney to become a $2 trillion-dollar company.

We’re also looking for disruptive technologies and a competitive advantage in the space. I know this one is kind of vague but you’re going to be reading through company descriptions and you’ll get an idea pretty quickly about which are changing their industry, which have that first-mover advantage in a product that everyone is going to want.

I’m also focusing on companies in the consumer side of sales, those selling directly into the consumer market. Of course, there are lots of companies on the B2B side that make a ton of money; is a great example, but just the scale of the consumer market, the $15 trillion in consumer spending in the United States alone, we’re much more likely to find our next hot stock in B2C.

And just looking at the FANGs, that’s largely been the case. Facebook and Google book some of their revenue from business advertising but for the most part, all five of these stocks are on that consumer/retail side.

I’m going to break my rule with these next two and go a little larger with $15 billion web development company Wix, ticker WIX.

Wix markets a cloud-based platform that enables anyone to create a website or application and upsells with a suite of 20-plus features to automate and grow your business. The company sells internationally with 55% of revenue from North American customers but double-digit growth in every geography.

The company reported mixed earnings for the Q2 period with revenue beating expectations for 27% year-over-year growth to $236 million though earnings missed on increased marketing expenses.

Shares initially dropped as much as 13% on the news but then closed down just half a percent which is a great confirmation of the price. Whenever one of these high-flying stocks can take a relatively bad earnings and not tumble, that’s a sign of investor commitment and the long-term outlook in the shares.

Wix has been growing revenue consistently around 26% a year and confirmed its target for 2020. User growth continued to surprise, up 18% in the most recent quarter, and the company is making more on each subscription, growing average revenue at a 6.5% annual rate.

Analysts expect revenue to grow to $1.5 billion by 2022, more than double 2019 sales, and the company is building up its ecommerce features to take on $130 billion Shopify for website owners.

The world is going online. There are more than half a million new websites created every day and WIX is positioned right in front of it.

Another larger company here, $37 billion communications development platform Twilio, ticker TWLO.

Developers and companies use Twilio’s platform to create text, voice and video communication with customers. In a disconnected, locked-down world, across tech channels is the only communication some companies have available and Twilio added another 20,000 customers last quarter after nearly tripling its customer base last year.

The company had a blowout quarter, growing revenue by 46% and booking 132% growth in the net expansion rate – that means besides customer growth, clients are also buying more services once they sign on.

COVID is accelerating the trend to digital communications. Clients include financial services giant ING, Deliveroo and the American Red Cross. Analysts expect revenue to reach $2 billion by next year and the company has a surprisingly strong balance sheet with $1.9 billion in cash against just $695 million in debt – so cash positive and producing $150 million in free cash annually.

In stock investing, being late to the party is just as bad as being wrong. Jumping into the FAANG stocks after they've already surged won't be the best way to grow your portfolio. Instead, look for the next generation FAANG stock for those triple- and quadruple-digit returns.

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