FANG stocks are collapsing in the pre-market as faith in the "growth at any cost" meme crashing on the shores of reality once again. Now down over 16% from their post-Fed-rate-hike highs, the stocks you should never sell are being sold in size as large crowds and small doors press NFLX and AMZN (and TSLA for good measure) down over 30% year-to-date. Even Mark Cuban is hedging…
It's carnage in the pre-open…
"For those of following my stock moves, I just bought puts against my entire Netflix position," Cuban posted on the site.
"I'm not selling. But I have no idea what this market will do."
Which will drag the broad FANGs to 5-month lows…
As we noted earlier, via JPMorgan's Kolanovic,
For instance, a popular group of stocks held by investors is known by the abbreviation “FANG” (Facebook, Amazon, Netflix, Google). We use these stocks as an illustration for a broader group of similar stocks that have the highest rankings according to momentum and growth metrics (and surprisingly in some cases even low volatility metrics). Given that traditional value metrics look expensive when applied to this group, one can compare these momentum/growth companies on a new set of metrics. For instance, one can look at the ratio of current price to earnings that the company delivered over all of its lifetime (instead of just the past year). Another metric could be a ratio of CEO or founder’s net worth to total company earnings delivered during its lifetime (see below):
Aggregating all FANG earnings since these companies were listed, one arrives at a ratio of current price to all earnings since inception of ~16x. This can be contrasted to a ratio of price to last years’ earnings for all other S&P 500 companies also at ~16x. We think this is extraordinary given that FANGs are neither small nor new companies. In fact, these are some of the largest companies in the S&P 500 and among the largest holdings of US retirees. Given that the three largest FANG stocks are now twice more valuable than the entire US S&P small-cap universe (600 companies), a legitimate question to ask would be “is such a high allocation by long-term investors to these stocks prudent?” Statistically, over a long period of time smaller companies outperform mega-caps ~75% of times. Note also that the current size ratio of mega-cap stocks to small-cap stocks is at highest level since the tech bubble of 2000.
Furthermore, such allocation is also questionable from a risk angle. For example, the idiosyncratic risk of holding three stocks in one sector is certainly much higher than the risk of owning, e.g., ~1,000 medium- or small-cap companies diversified across all sectors and industries.
Finally we leave with the thoughts of infamous MacroMan – Just Say No To Equity Market Drugs
The real stock junkies probably go for the really hard stuff: equity market smack.
Long FANG and short GDX was a prodigious trade over the past several years, with that spread rising more than 10-fold from Facebook's IPO in May 2012 to Thanksgiving of last year. The high was great while it lasted, but coming down has proven to be unpleasant to say the least. If you wanted one chart to illustrate the pain in equity space, this would be the one. As Macro Man noted last week, GDX looks like breaking out, potentially inflicting more pain.
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This won't end well – it never does.
via Zero Hedge http://ift.tt/1PgUwKG Tyler Durden