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Should You Invest in the FANG on the Correction?
The long-running bull market is starting to correct. We, and many others, have suggested that investors may want to get out of growth stocks and switch to value stocks in preparation for a market crash or at least a painful correction. The rationale is that value stocks are companies with low debt, cash in the bank, and property unencumbered by excessive debt. However, the basis of intrinsic stock value is forward looking earnings. And, the best earnings in recent years have come from tech stocks like the FANG (Facebook, Amazon, Netflix, and Google-Alphabet).
Protected from a Trade War with China
One of the expected contributors to a market correction, or worse, is the evolving trade war with China. We looked at what you can invest in and not get hurt by a trade war.
It turns out that Facebook, Amazon, Netflix, and Google (Alphabet) either do not do business in China or have a very limited presence. Even though these stocks have become somewhat pricey in the current market they could not be directly hurt in a trade war with China.
CNBC quote Cramer of Mad Money who is saying basically the same thing as he suggests that investors buy given-up-on FANG stocks.
The FANG cohort benefits from having very few ties to the Chinese market, Cramer said, with the use of Facebook, Netflix and Google’s services almost entirely blocked by the government and Amazon facing a sprawling competitor in Alibaba.
Second, “the Federal Reserve is bent on squelching inflation wherever it can find it, ” the “Mad Money” host said, referring to the central bank’s rate hike agenda.
“When that happens, the companies with the highest price-to-earnings multiples are the ones that benefit,” he said.
Thus, the growth stocks that had become very pricey will look very attractive after a reasonable correction.