FAANG Dip Could Signal Buying Opportunity

AMZN and AAPL shares have historically been two of the best stocks to own in July

Jun 28, 2017 at 1:18 PM
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Despite a recent pullback earlier this month, technology shares have largely blazed a path higher in 2017, with Google parent Alphabet Inc (NASDAQ:GOOGL) and fellow FAANG stock Amazon.com, Inc. (NASDAQ:AMZN) both taking inaugural treks north of the $1,000 mark during this six-month stretch. And while the outperforming sector has recently consolidated a portion of these impressive gains, history suggests it might be time to buy the dip -- or possibly call options -- considering tech stocks have been some of the best to own in the second half of the year.

Internet ETF Has Historically Been Strong in the 3Q

While the biotech sector tends to put in one of the strongest monthly performances in July, internet stocks have historically outperformed when looking at the July-September time frame. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, the First Trust Dow Jones Internet Index Fund (FDN) -- a fund that includes AMZN, GOOGL, Facebook Inc (NASDAQ:FB), and Netflix, Inc. (NASDAQ:NFLX) stocks among its top holdings -- has averaged a third-quarter gain of 5.34% over the past 10 years, with 70% of the returns being positive. A move of this magnitude would send FDN above the century mark, based on its current perch at $95, and north of its June 9 record high of $98.08.

3q etf returns since 2016

AMZN, AAPL, GOOGL, NFLX Among Best Stocks to Buy in July, 3Q, 2H

Nearly all of the FAANG names have been among the best stocks to own in the latter half of the year, too. Shares of AMZN, for instance, have averaged a 7.5% gain in July, looking back over the past 10 years, and have turned in a negative performance just once over that time frame. Apple Inc. (NASDAQ:AAPL) has also been strong in July, adding 6.4%, on average, with an 80% win rate.

Amazon and Apple have also two of the best S&P 500 Index (SPX) stocks in the third quarter over the past decade, boasting average gains of 15.5% and 9.9%, respectively. Fellow big-cap tech names GOOGL and NFLX have been strong over this three-month stretch, too, averaging respective gains of 8.5% and 7.6%, and turning in positive quarterly returns 80% of the time. Plus, in the second half of the year, Google shares have returned an average of 20%, and Netflix stock 21.8%, making them two of the best SPX stocks over the six-month period.

This positive price action would just be more of the same for the red-hot tech stocks, though. Even after succumbing to recent sector headwinds, Amazon shares are up 30.7% year-to-date to trade at $979.75. Apple stock, meanwhile, is trading at $144.60 -- down from its May 15 record high of $156.65, but still up 25% on the year. Google's EU-related woes have it testing support at $940, last seen at $946.50. Nevertheless, the stock is still sporting a 19.4% lead so far this year. NFLX shares have tacked on 23.5% in 2017 to trade at $153.15, not far from their June 8 peak at $166.87.

FB Stock is Trading Near Significant Trendline

Rounding things out, Facebook shares have pulled back to their 40-day moving average after tagging a record high of $156.50 on Monday, June 26. If recent history is any guide, the stock could be ready to bounce. Per data from White, there have been just two other times in 2017 that Facebook stock moved within one standard deviation of its 40-day trendline after a notable stretch above it. After these signals, FB stock has averaged a one-month gain of 5.4%, and was positive both times. At last check, the security was trading at $151.89, up 32% in 2017.

FAANG Stocks Have Room to Run

"I think some of those FAANGs are still undervalued," Salesforce.com CEO Marc Benioff told CNBC earlier this week. This outlook was echoed by Goldman Sachs today, when the brokerage firm said it sees internet stocks being driven higher by improving fundamentals. "Given the potential for the shift in retail and advertising dollars online to accelerate given the rate of store closures and television rating declines," Goldman says the original FANG stocks should continue to outperform. More upbeat attention like this could help support tech's quest for new highs.

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