The FAANG stocks, in these uncertain times, are expected to rise as much as 35% over the next year

On March 8, David Tepper, the founder of Appaloosa Management, said during an interview with Joe Kernen of CNBC that the rise in interest rates on 10-year U.S. Treasury notes TMUBMUSD10Y, 1.596% to a yield of about 1.60% signaled that a major risk for U.S. bonds and stocks was “off the table.”

Tepper, whose predictions are closely watched by Wall Street, went on to say that the expected $1.9 trillion government stimulus would be a near-term catalyst for stocks, pointing to Amazon.com Inc. AMZN, -0.81% as especially attractive. Amazon’s shares fell 8.5% for the three-week period through the close March 5.

Investors are used to “big tech” being associated with the FAANG stocks: Facebook Inc. FB, -2.83%, Apple Inc. AAPL, -3.88%, Amazon, Netflix Inc. NFLX, -3.67% and Google holding company Alphabet Inc. GOOG, -3.48%. But Microsoft Corp. MSFT, -1.39%, the second-largest company in the S&P 500 SPX, -0.22%, is often lumped in with the FAANGs.

FAANG pullback

For three weeks through March 5, the S&P 500 pulled back only 2.3%, but the Nasdaq-100 Index NDX, -2.56%, which is tracked by the Invesco QQQ Trust QQQ, -2.51%, fell 8.3%. Here’s how the FAANG+Microsoft group fared during that period:

So Apple fared worst, with a 10.3% decline, followed by Amazon, while Microsoft was down 5.5%.

Loving Microsoft

On March 8, Goldman Sachs analyst Kash Rangan added Microsoft to his “conviction buy list,” with a price target of $315, which would be a 36% increase above the stock’s closing price of $231.60 on March 5.

In a note to clients, Rangan wrote that Microsoft’s “strong presence across all layers of the cloud stack” was providing “a pathway for sustained double-digit topline growth alongside continued margin expansion.”

“Moreover, our conversations [with corporate chief information officers] point to
Microsoft Azure increasingly short-listed as a strategic cloud vendor within large
enterprise customers,” he added.

Sales growth estimates

Here’s a summary of consensus estimates among analysts polled by FactSet for the FAANG+Microsoft group’s sales growth in calendar 2021 and 2022. All the figures, even those for prior years, are marked “estimated” because not every company’s fiscal year matches the calendar year. (Apple’s fiscal 2020 ended Sept. 26.)

Scroll the table to see all the data.

During the pandemic year of 2020, Amazon showed the best sales growth, by far. But for 2021 and 2022, Facebook is expected to achieve the most rapid increases in revenue.

All six companies are expected to increase sales by double digits during 2021, but Apple’s sales growth is expected to slow to only 4% in 2022.

Free-cash-flow growth estimates

A company’s free cash flow is its remaining cash flow after planned capital expenditures. It is money that can be used to fund expansion or acquisitions, or buy back shares, increase dividends for for any other corporate purpose. Here’s a summary analysts’ expectations for the group’s free cash flow this year and in 2022:

Again, scroll to the right to see all the figures. For Netflix, the free cash flow numbers underscore how important it is not to lump a group of stocks together, simply because of a clever acronym. For Netflix, subscriber growth has been an important driver.

Amazon.com is expected to be show the best increases in free-cash-flow generation over the next two years.

Price targets

Here’s a summary of Wall Street analysts’ opinions about the FAANG+Microsoft group of stocks:

The analysts as a group favor all six stocks, with the highest percentages of “buy” or equivalent ratings for Amazon, followed by Microsoft and Alphabet. For Microsoft, Goldman’s Rangan has the highest price target of $315 among analysts polled by FactSet. But even the consensus price target of $231.60 would be a 22% gain from Microsoft’s close on March 5.

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