Question 5: Which FANG stock will fare best in 2017?
- Facebook (FB)
- Amazon (AMZN)
- Netflix (NFLX)
- Alphabet/Google (GOOGL)
I think that the FANG stock story is a little played out – these were the four hottest stocks of 2015 and none did anything particularly interesting in 2016.
Last year, I noted that of the four businesses, I think that Netflix has the weakest business. It happens to be my favorite streaming service, but I don’t know how they compete against Amazon, Apple or Google (if the latter gets into the business).
I also think that it is the most expensive, by a long shot. If you look at the forward PE-ratio, NFLX is 137, compared to between 20 and 75 for the other companies. They’re all expensive, but, wow, NFLX is expensive!
Morningstar, which does a fundamental discounted cash flow (DCF) model for each of the companies, thinks that it’s worth $73 per share and the stock closed at $140, suggesting that it is about 90 percent overvalued.
They think that GOOGL and FB are fairly valued and that AMZN is trading at a 10 percent discount (hard to believe with a 75 forward PE).
My pick for worst performer in 2017 is NFLX, which is a real statement since the stock is up 13 percent so far this year. Given AMZN’s competitive advantage and 10 percent trading discount, my pick for who will fare best in 2017 is AMZN. Ugh, one-year predictions are truly impossible.
Question 7: Which company will agree to be taken over in 2017?
- T-Mobile US (TMUS)
- Viacom (VIAB)
- Anadarko Petroleum (APC)
- Pandora Media (P)
- Trip Advisor (TRIP)
- Netflix (NFLX)
- All remain independent.
Astute readers will notice that I skipped question six; I am tackling the individual stock questions today and will try and group the other questions between ‘macro’ and ‘politics’ the rest of this week.
Well, given my NFLX comments earlier, I really can’t imagine how anyone would be willing to pay the price to take them over. For this answer, I relied on Morningstar DCF analysis to see which company is the cheapest. It’s basically a tie between VIAB and TRIP (Morningstar doesn’t cover P).
I haven’t followed the story closely, but VIAB is deeply immersed in political intrigue and scandal as others try and wrestle control from media legend Sumner Redstone.
I would bet that TRIP will be taken over, but they just inked a partnership with Expedia, which makes me think that if Barry Diller wanted TRIP, he would have it by now. So, my bet is G, that all will remain independent.
Which losing stock from 2016 will fare best in 2017?
- Nike (NKE) -17.6%
- Anheuser-Busch InBev (BUD) -12.4%
- Valeant Pharmaceuticals (VRX) -85.7%
- Bristol-Myers Squibb (BMY) -13.4%
The good folks at Morningstar say that VRX is trading at a 60 percent discount to their fair value estimate. That may be true, but I wouldn’t have the nerve to touch VRX with a 10-foot pole given their recent scandals. Maybe it’s a great buy, but I like a dose of quality that VRX just doesn’t have.
All three of the other companies are large, stable businesses that have strong competitive advantages. I’d be happy to own any of them, but the cheapest based on Morningstar’s analysis and a number of other metrics is Bristol-Myers, so I pick D.
Unfortunately, I have to pass on several of the stock questions because they ask about companies on our Approved List. I realized last night that I couldn’t even pick which stocks I think will fare best or worst in the Dow Jones because the DJIA includes a number of our Approved List stocks, which would affect my choices.
Stay tuned tomorrow for the macro forecasts (guesses) on subjects like oil and interest rates.