Silicon Valley Stocks: Bay Area’s 4 Top Stocks — FANG Analysis

Silicon Valley stocks
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Best Silicon Valley Stocks for 2019

2018 has been a tough year for tech stocks across the board. With a few notable exceptions, many of the the top tech companies in the Bay Area saw their stock prices stagnate or decline. Looking forward, are the “FANG” stocks the best Silicon Valley stocks for 2019?

In order to answer that question, we’ll be looking closely at the stocks that make up the celebrated FANG quartet: Facebook, Inc. (NASDAQ:FB), Apple Inc. (NASDAQ:AAPL), Netflix, Inc. (NASDAQ:NFLX) and Alphabet Inc (NASDAQ:GOOG)—originally known as Google.

Together, these four companies have a market cap approaching $2.0 trillion. These are, without a doubt, the most valuable Silicon Valley companies, but are they the best tech stocks for investors?

First, a quick tech-sector analysis.

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The Nasdaq Composite index is down on the year, reflecting an overall decline in the tech stock market. The Dow Jones Industrial Average is also down, speaking to a pullback across all markets.

With talks of a recession nearing, tech stocks have had to grapple with the slowdown in the market overall, as well as a number of individual issues.

While tech is still the hottest game in town—and these companies still have a lot of room for growth and expansion—2018 was a disappointing year for investors.

So what does that mean in relation to the best Silicon Valley stocks for 2019? Well, if we are indeed in for a recession, don’t expect to see huge gains from them. In fact, in the case of a recession, shorting may be the way to go.

Conversely, for long-term investors, these stocks still hold a ton of potential for future growth.

Top Tech Companies in the Bay Area

Here is my quick breakdown of the FANG stocks, a review of 2018, and what 2019 could hold.

Company Stock Ticker Market Cap (billions)
Netflix, Inc. NFLX $116.2
Apple Inc. AAPL $760.4
Alphabet Inc GOOG $710.5
Facebook, Inc. FB $385.2

(Source: Google Finance, last accessed December 19, 2018.)

AAPL Stock

Apple stock was stagnant over the course of 2018, amounting to about a one-percent loss.

But AAPL stock could see this all turn around in 2019, assuming  there isn’t a market-wide pullback. Apple is in the midst of transitioning its business model.

“iPhone” sales, which comprise the bulk of Apple’s revenue, were stagnant in 2018. (Source: “Global Apple iPhone sales from 3rd quarter 2007 to 4th quarter 2018 (in million units),” Statista, last accessed December 19, 2018.)

In fact, beginning with the next quarter, Apple will no longer report iPhone unit sales in its financial reports. This reflects a shift in the company’s focus from iPhones to services and other markets.

While the company’s fourth-quarter report saw a 20% revenue increase compared to a year ago, that still fell short of expectations and led to a decline in AAPL stock.

Services revenue, however, is noted in the company’s Q4 report as having reached an all-time high of $10.0 billion. (Source: “Apple Reports Fourth Quarter Results,” November 1, 2018.)

Many believe that a pivot is in store for Apple, with the company continuing to move away from relying solely on iPhone sales to bolster its revenue. Looking at services and other segments to help grow the company is a bold plan that could pay off for investors.

Stagnant or not, there’s still a huge amount of selling power behind the iPhone and other Apple products. With those foundations in place, the company has room to grow its other segments and turn its revenue figures around in 2019.

The largest of the FANG stocks by market cap, AAPL stock is discounted right now, so that could present a good opportunity to investors.

GOOG Stock

Another company that saw little stock price movement in 2018 was Alphabet, owner of Google. Considering how tumultuous 2018 was for the company, a neutral break for GOOG stock isn’t a bad showing.

Google faced a number of scares throughout the year, from problems related to diversity within its business to criticism for working on a search engine for China that would suppress queries that the government didn’t like. (Source: “Google CEO Sundar Pichai had a tough and terrible year — but it was still better than Facebook’s,” CNBC, December 16, 2018.)

The most profound concerns, however, were about the privacy of the company’s users.

This culminated in CEO Sundar Pichai testifying before U.S. Congress on a wide number of issues.

Most relevant were the charges of bias from both sides of the political aisle, with YouTube, LLC (a Google-owned subsidiary) being accused of spreading radicalizing content and conspiracy theories. Meanwhile, Republicans were concerned that President Donald Trump showed up in Google results when a user would search the word “idiot.”

This all led to a rather anti-climatic Congress hearing, with little being made of all the chaos.

Still, all things considered, Google has emerged from 2018 relatively unscathed. Its poor performance in the past few months makes GOOG stock a better deal at the moment. If the company can avoid further controversies, the Google stock forecast for 2019 looks promising.

FB Stock

Much in the same boat as Google is Facebook. The company has faced wave after wave of scandal, which culminated in CEO Mark Zuckerberg appearing before Congress.

Whereas Google came out of its tussle with Congress relatively unscathed, the inquiry into Facebook was much more fiery, particularly regarding its involvement with security and privacy issues—as well as the dreaded “fake news” problem.

And the scandals just kept rolling in, with a recent report showing a company interested in manipulating the narrative and otherwise performing about as devilishly as its most ardent critics suggest it does. (Source: “Facebook’s Stock Plunge Shatters Faith in Tech Companies’ Invincibility,” The New York Times, July 26, 2018.)

FB stock has performed by far the worst of all the FANG stocks, down about 19% on the year.

The company’s second-quarter earnings report in July fell short of expectations and showed slowing growth, giving FB stock its biggest shakeup. 

The company took a 19% hit at the time, wiping out roughly $120.0 billion of shareholder wealth. That event ranks up there with the highest single-day wipeouts a company has ever faced.

Facebook has long warned investors of a slowdown, but few were willing to listen. Couple that with the company’s presence in the news, and you have a weakened FB stock value.

While I fully expect Facebook stock to recover in the years to come, it will be difficult for the company to achieve big gains in 2019. That’s because it will have to funnel capital into privacy and security measures while addressing a number of other issues that were brought up in 2018.

Long-term buy-and-hold strategies could still be wise with FB stock, but investors who are hoping for quick gains in 2019 should look elsewhere.

NFLX Stock

Unlike the other FANG stocks, Netflix stock is still doing very well. NFLX stock is up 40% on the year, and the company registered strong financial numbers in its recent quarterly report.

Revenue hit $4.0 billion, which is about what analysts had projected. Earnings per share, meanwhile, outperformed expectations, hitting $0.89 instead of the expected $0.68. The company also added almost 7.0 million subscribers, outdoing its projections. (Source: “Netflix surges after crushing earnings,” CNBC, October 16, 2018.)

All that said, the downturn in the wider stock market has seen NFLX stock plummet by about 30% since September.

Furthermore, Netflix is bearing a heavy debt load and faces challengers to its streaming dominance from companies like Amazon.com, Inc (NASDAQ:AMZN) and Walt Disney Co (NYSE:DIS).

Still, at $116.2 billion in market cap, Netflix still has a lot of room to grow compared to its FANG counterparts.

Although many have long augured the fall of Netflix due to the entry of strong competitors to the video streaming market, Netflix remains king.

NFLX stock is my top pick among the best Silicon Valley stocks for 2019. It is one of the top tech companies in the Bay Area by size and still has a lot of room for upward trajectory.

Silicon Valley Tech Companies List and Chart

Below is a chart of the FANG stocks year-to-date, with NFLX stock (black), AAPL stock (blue), FB stock (red), and GOOG stock (green).

Chart courtesy of StockCharts.com

Analyst Take

The tech sector underperformed in 2018, and that may also end up being the case in 2019, even for the most valuable Silicon Valley companies.

But for long-term buy-and-hold investors, there are few other opportunities that are as ripe for growth while also showing stability like the FANG stocks.