In this piece, we’ll use TipRanks’ Comparison Tool to look at three FAANG stocks — AAPL, GOOGL, AMZN — that Wall Street is pounding the table on, with “Strong Buy” ratings and price targets that still imply solid gains from current levels. The comparison indicates which FAANG stock to buy, according to analysts.
FAANG stocks have been in rally mode ever since the broader stock market formed a bottom in June. Many firms within the exclusive cohort have been viewed as rather defensive amid the recent barrage of volatility. While the powerful tech behemoths aren’t immune to the impact of a steep economic downturn, they seem better equipped to take further market share away from their competitors.
Undoubtedly, the FAANG group has found ways to adapt to difficult times. Though the coming recession could be the falling tide that lowers all boats across the S&P 500, my bet would be that the best-in-breed firms, like those within FAANG, will be the ones that better themselves most as job cuts and cutbacks on investment become the new norm.
While I don’t view FAANG as the market’s “new defensives,” I do think they’re in great shape to continue acting resilient over the coming weeks and months. This market is beginning to show signs that it’s okay with higher interest rates if it means pushing inflation off of its incredibly elevated peak.
Apple (AAPL)
Apple has been the hottest of the FAANG cohort of late, surging more than 33% off its June low. Undoubtedly, the iPhone maker is showing signs of taking share away from rivals. As the world slips into a recession, Apple seems well-equipped to offset macro headwinds as it continues moving into the turf of rivals, not just in smartphones but across other product categories and services.
Morgan Stanley analyst Erik Woodring recently noted that Apple has more stable products relative to competitors. He’s right. With such a powerful ecosystem of many loyal users, Apple can raise prices in a big way without its customers putting up too much fuss. In an era of high inflation, Apple’s top-tier pricing power is paying major dividends. Just ask Warren Buffett, who took another big bite out of AAPL stock in the second quarter.
For the second quarter, Apple saw demand shipments slip 9%. Still, global demand couldn’t be more robust, with Apple’s global phone share rising to 17% in Q2 from 14% over the same quarter a year prior.
Apple continues to flex its muscles, and I find it hard to believe a mild recession will stop recent momentum in its tracks. Looking ahead to 2023, a recession may be in the cards. That said, the firm could be poised to unveil its mixed-reality headset.
Undoubtedly, it’s been such a long time since Apple delivered such a shocker at its keynote. Though the headset is no longer a surprise, given the rumor mill has been spinning for years now, I wouldn’t at all be shocked to see shares rally as the design and additional details are released.
Indeed, Apple may have the keys to the metaverse, making it an exciting time to be a shareholder.
Like the Oracle of Omaha, Wall Street analysts just can’t get enough of AAPL stock, which has 23 Buys, four Holds, and one Sell. The average Apple price target of $182.79 implies just 4.7% upside potential over the year ahead. Given the magnitude of the recent run, though, Apple stock seems overdue for some price target upgrades.
Alphabet stock has enjoyed a much more muted bounce off June lows, now up around 16%. The company is fresh off a better-than-feared quarter that actually fell short of analyst expectations. For Q2 2022, Google’s per-share earnings came in at $1.21, just shy of the average analyst estimate of $1.27.
Despite the rare bottom-line fumble, investors have been much more forgiving of the name. Google Cloud really flexed its muscles for the quarter. As the secular trend in the cloud continues, it’s likely that Google’s Cloud business can continue helping the stock weather any further macro storm. Sometimes secular trends are just far stronger than mild macro headwinds.
Alphabet’s Q2 revenues came in just shy of $70 billion, up 12.6% year-over-year on a constant-currency basis. Advertising — a segment that’s caused quite a bit of investor nail-biting in recent months — remained robust, up 11.6% year-over-year.
Though YouTube has hit a bump in the road, I still view it as head and shoulders above peers in the social space. Undoubtedly, the video platform remains a preferred entertainment option among many within the Generation Z (Zoomers) cohort.
As the worst of the recession sets in, we may see Alphabet’s ad growth reaccelerate. For now, Alphabet remains one of the cheaper FAANG stocks at this juncture at 22.3 times trailing earnings.
Wall Street continues to praise Alphabet stock, with 32 analysts rating the name as a Buy while only two analysts rate it a Hold. Google’s price forecast of $142.63 puts the upside potential comes in at 18.9%.
Amazon (AMZN)
Amazon is the e-commerce darling that blew away expectations in its second quarter. Undoubtedly, many investors and analysts may have underestimated the retail behemoth’s staying power in the post-Bezos era. CEO Andy Jassy has proven a capable leader, and he’s ready to propel the e-commerce darling to the next level.
As the consumer recession sets in, retail may be in for a slump. Still, Amazon has shown that AWS (Amazon Web Services) is the new star of the show, with AWS growth surging by 33%. As a cloud frontrunner, Amazon arguably has the most room to run as the secular trend in the cloud continues through the coming period of economic slowness.
Further, Amazon’s forward-looking projects seem most exciting, as the company looks to increase its disruptive force amid rising interest rates. Higher rates have curbed reinvestment in growth among many cash-strapped small firms in the tech space. With such deep pockets and the ability to sustain steep losses across various forward-thinking business segments, Amazon is arguably one of the best growth stocks to own in this environment.
The firm’s logistics and fulfillment push could bolster its payments business and help Amazon spread its wings of disruption further. Simply put, the FAANG behemoth is better-positioned than most to grow in a recession, mild or severe.
Wall Street still loves Amazon stock while it’s off 22% from its highs, with 39 Buys and just one Hold. The expected upside for the year ahead comes in at 24%, as Amazon’s price target is $176.04.
Conclusion
FAANG stocks are magnificent companies that may be key to succeeding in a 2023 mild recession. Of the three stocks mentioned, Wall Street expects the greatest gains from Amazon stock over the next year.
