The biggest companies are frequently market drivers, but they’ve changed over time. Twenty years ago, the five largest public companies by market capitalization were General Electric (GE), Microsoft (MSFT), Exxon Mobil (XOM), Walmart (WMT) and Pfizer (PFE). Today, only one of those companies (Microsoft) cracks the list. And none are likely to be the next FAANG stocks.
Ten years ago, Microsoft and Exxon were still there, along with hard-charging Apple (AAPL), International Business Machines (IBM) and Chevron (CVX). Today, Apple and Microsoft remain, but the other three aren’t even among the 30 most valuable public companies in the world.
In 2021, the FAANG stocks (Meta Platforms (META), Amazon (AMZN), Apple, Netflix (NFLX), Google (GOOG)) reigned supreme, accounting for about 15% of the S&P 500. More often than not, as they go, so goes the stock market. And it seems like it’s been that way forever.
But a decade ago, Meta wasn’t even a public company; Netflix was still primarily a DVD-by-mail outfit that was two years away from creating any original content; and Amazon stock was at 210 a share. Things change quickly—in the business world, and on Wall Street.
Right now, it seems like the FAANG stocks will continue to run up in perpetuity, and will continue to dominate the market and the economy for years and perhaps decades to come. History says that’s unlikely.
Late last year, Mike Cintolo, our resident growth investing guru and market expert, was asked a question on a webinar he hosted about which of the FAANG stocks he’d recommend buying now. Mike paused for a second, then responded, “None of them.”
His reasoning? Their greatest periods of growth are behind them. Indeed, those five big tech stocks have posted an average gain of 108% in the last five years—more than double the return in the S&P 500 (50%) and nearly double the return in the Nasdaq (71%). The five years prior to that, the FAANG stock gains were even more outsized.
As we’ve learned from XOM (up 6% in the last decade), GE (-59%), IBM (-28%) and PFE (lots of momentum lately thanks to the Covid-19 vaccine, but shares have just recently topped their previous all-time highs, from 1999), companies don’t stay on top forever. The global economy is always evolving, and the companies that don’t evolve with it get left behind.
GE suffered from products and innovations are no longer as in demand in an increasingly digital world. IBM was ahead of the curve on computer technology; now it has grown stale.
How will the world change in the next decade? Or, even more mind-bendingly, in the next 20 years? No one knows. But we can make some educated guesses as to what companies appear to be well positioned for the coming changes.
Here are five leading candidates to become the next FAANG stocks:
5 Candidates to be the Next FAANG Stocks
Tesla (TSLA): This is probably the closest thing to a FAANG stock that isn’t one yet. You know Tesla. It’s the sixth-largest company in the world by market cap (bigger than Netflix); the stock is up 740% in the last five years; and the company has made founder Elon Musk the world’s richest man. Sounds like a stock whose best years are behind it, right? Yes, but while TSLA stock may not replicate its 740% return in the next five years, it is still the clear leader in an industry (electric vehicles) that is just scratching the surface of its potential. As the world continues its trend toward lowering carbon emissions, Tesla’s standing – and business – will grow.
Spotify (SPOT): The leading streaming music player just recently broadened its offerings into podcasts. At the end of 2021, it had 180 million paid subscribers and 400 million monthly users. In essence, Spotify is becoming to streaming audio what Netflix is to streaming video. The stock took a while to get going after its April 2018 IPO and, despite a surge during the pandemic recovery, has struggled in the midst of the recent growth stock selloff. If the company can figure out how to turn a profit, SPOT shares could skyrocket in the coming years.
Teladoc (TDOC): We’ve all likely met with a healthcare provider online instead of in person sometime in the last two years. And Teladoc happens to be the leader in on-demand healthcare service over the internet. Not surprisingly, the company has benefited greatly from Covid-19, with revenues accelerating (24%, then 27%, then 40%, then 85%, then 109%, then 145%, then 150%) for seven quarters straight, before pulling back and “merely” posting an 86% year-over-year bump in 2021. And the stock was following suit, more than doubling in a year before a massive retreat in 2021 that saw the shares lose 90% of their value from the peak. Still, the need for healthcare will never go away. The need to be there in person for all your appointments will.
Virgin Galactic (SPCE): Space: the final frontier? Founder Sir Richard Branson still thinks so. If all goes well, Branson will be on his company’s first flight to space that includes paying passengers some time next year (he already was among the few passengers to test-ride the company’s first space flight without customers last summer). Revolutionary? Absolutely! Big potential? Yes! Big earnings potential? Eventually—the long-term goal is ultra-fast transcontinental travel, like New York to Tokyo in two hours. Obviously, there are major hurdles. But the company is well funded and has experienced management, so it’s quite possible. The stock is trading near all-time lows after some big ups and downs last year, partially due to recurring delays in commercial readiness. Best to wait for this one to stabilize before nibbling.
ETFMG Alternative Harvest ETF (MJ): This one’s a bit of a cheat. As you can see, it’s an ETF, not a stock, and this article is about the top candidates to become the next FAANG stocks. But it’s hard to pick just one when it comes to the marijuana industry. Thanks to spreading legalization and now a cannabis-friendly administration and Congress in Washington, marijuana retail sales are accelerating—but still in the early stages. After a two-year retreat, marijuana stocks had a very good 2020 and great to start to 2021....before retreating sharply again over the past 16 months. No matter, they won’t stay down long. And this is the largest ETF that allows investors to gain access to all of the biggest cannabis stocks. Eventually, one or two marijuana retailers will emerge as the clear market leaders. Until then, MJ is the best way to play the sector’s inevitable rebound.
What growth stocks do you own that you think could be a future FAANG?
*This post has been updated from an original version, published in 2020.