Is the FAANG Trade Over?

I recently joined a roundtable discussion hosted by The questions posed: Is The FAANG Bull Run Over and are Tech Stocks Still A Buy?

This was my answer:

The FAANGs trade is a little long in the tooth at this point, and, frankly, no trade lasts forever. Apple (AAPL), Amazon (AMZN), and Alphabet (GOOG) were all within striking distance of trillion-dollar market capitalizations, and Facebook (FB) was on pace to get there pretty quickly at the rate its share price was appreciating. There is still a lot of like about this group. All are leaders in their respective corners and all but Netflix (NFLX) and Amazon have extremely fat margins and large cash cushions.

But in the race to $1 trillion, valuations have gotten stretched, and growth looks more questionable. Social media is no longer new (a third of the world’s population is already a regular Facebook user) and Facebook’s business model is now under regulatory scrutiny. Smartphones are a saturated market, and Apple’s business model depends heavily on squeezing more revenue out of a base that is no longer growing. Netflix faces new competition from former partners, such as Walt Disney Company (DIS). Alphabet is still essentially a one-trick pony that depends far too heavily on advertising revenues from its search engine. Amazon is attracting unwanted political attention, and any or all of these companies could be the subject of antitrust action by the U.S. or European Union.

These are all strong companies and it makes sense to keep them on a watch list. But I’m not a buyer at current prices and this late in the cycle. The better trade today is in beaten-down value sectors. I particular like midstream energy and auto stocks at current prices.

You can read the other answers here.

Disclosures: Long AAPL

This article first appeared on Sizemore Insights as Is the FAANG Trade Over?

What’s Walmart’s Gameplan with Humana?

Rumors are circling that Walmart (WMT) might be acquiring Humana (HUM) or, at the very least, deepening its partnership with the health insurer.

I have my own thoughts on the matter. As I shared with Reuters’ Nandita Bose,

“The end goal here is to get more people in their stores, get them to buy drugs and make an additional purchase while they are in the store,” said Charles Sizemore, founder of Sizemore Capital Management LLC, who owns shares of Walmart.

If Walmart can offer “competitive rates” on primary care and other health services, he said, it “can grow traffic and push store visits.”

To view full article see Come for your drugs, leave with more shopping: Walmart’s new growth strategy?

Walmart has been the master of cutting out the middle man for its entire multi-decade history, and the company is well known for squeezing its suppliers. By acquiring or partnering with a major health insurer, Walmart can guarantee rock-bottom pricing for prescription drugs. And if their ultimate goal is to simply attract more foot traffic to their stores, they can sell the drugs at breakeven, and it still makes economic sense.

Looking at the bigger picture, the government has failed miserably to contain health costs. And this is not a partisan complaint; the failure is shared by both parties. Yes, ObamaCare has been a disaster and accelerated healthcare inflation, but there would have never been political demand for the flawed program if either party had been successful in containing costs over the past several decades.

The private sector is stepping in where the government has failed. Walmart is potentially partnering with Humana, while Amazon (AMZN), Berkshire Hathaway (BRK.B) and JP Morgan (JPM) are working on a collaboration of their own to lower costs.

All of this is fantastic for consumers. Some of these attempts will almost certainly fail (success is created by trial and error, after all), but the important thing is that we’re seeing the beginnings of innovation. That’s good, because we sorely need it.




This article first appeared on Sizemore Insights as What’s Walmart’s Gameplan with Humana?