My view on what's going on in the financial markets and the global economy, and a few other things that might interest me from time to time.

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  • tim@emorningcoffee.com

FAMAG Stocks Still Matter.....A Lot

I have written several times over the last two years about the FAANG+M stocks. The last such article was about one year ago (Jan 21, 2021, here). I thought it would be interesting look at these distinguished stocks again early in 2022, nearly one year later since I last wrote about them.


For this article, I have made some slight alterations in the stocks I will discuss. Specifically, I decided to exclude NXFL. Although NFLX is an excellent company, the company’s market cap was only around $272 billion (23rd in the S&P 500) at year-end, which is less than one-third of the size of the smallest of the FAMAG stocks, FB. AAPL, AMZN, FB, GOOG (dual-class) and MSFT – the FAMAG stocks – are the five largest companies / six largest stocks by market capitalisation in the S&P 500, collectively accounting for nearly 26% of the index at year-end 2021. Representative of the change in the composition of the top of the index in the last year, I have also included NVDA and TSLA in some parts of this analysis, since they are the next two largest companies in the S&P 500. These seven tech giants (eight stocks) accounted for almost 30% of the S&P 500 index at year-end 2021. As you can see in the table below, the 9th and 10th largest companies at year-end 2021 in the S&P 500 index were BRK and UNH.

The table below shows the performance over many years for the FAMAG companies, and also for TSLA and NVDA, compared to the performance of the S&P 500 index. The companies are listed from left to right by size as measured by market capitalisation (largest to smallest) as of December 31, 2021.


All of these stocks have had much better returns than the return on the S&P 500 index over 3- 5- and 10-year periods, some rather substantially so. You can also look at two valuation metrics at the bottom of the table – price-to-forward earnings and price-to-trailing sales. This will give you a sense of the relative value of these mega-cap companies. You can compare these ratios to similar ratios for the broader S&P 500 index, which shows that none of these companies are necessarily cheap. However, the stocks most vulnerable to a pullback are those that are the most expensive. In spite of their past performance and growth trajectory, I continue to believe that the most vulnerable to a market correction are TSLA and NVDA. For reference, the FAMAG companies start reporting their most recent quarterly earnings the week of January 27th.


The table below shows how the FAMAG companies have grown over time in relative importance to the S&P 500. I have included a second column that adds NVDA and TSLA to the FAMAG companies. These seven companies together accounted for nearly 30% of the S&P 500 index at the end of 2021.

As these companies have become increasingly relevant to the S&P 500 index, they have also become increasingly relevant in terms of driving the overall return of the benchmark index. The final table below illustrates the returns since 2010 of the S&P 500 index compared to the returns of the FAMAG stocks + TSLA and NVDA (excluding dividends). The table also shows how the index would have performed on a pro forma basis historically had these companies not been in the index.

There is little that has changed since I last wrote about the FAMAG stocks, except that these five extraordinary companies, along with NVDA and TSLA, are even more influential as far as contributing to the overall return of the benchmark S&P 500 index. Owning the shares of one or more of these companies has worked brilliantly as far as creating positive returns vis-à-vis the broader S&P 500 index. These are all strong companies with defensive characteristics, proven strategies, strong management teams and amazing growth histories. Even so, there is little doubt that they are relatively expensive collectively although I doubt you will ever regret owning any of these stocks, aside perhaps from the more volatile shares of TSLA since this company arguably has different competitive and technical dynamics.

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