In some ways, the term FAANG stocks has lost its oomph. After all, Facebook's corporate name is now Meta Platforms (META 3.77%), and Google rolls up to its parent company Alphabet (GOOG 0.58%) (GOOGL 0.42%). However, Apple (AAPL 2.15%), Amazon (AMZN 0.87%), and Netflix (NFLX +1.15%) haven't changed, leaving three of the original letters in FAANG intact.
Whatever you want to call these five stocks, they've been hot so far in 2023. The worst performer in the group (Apple) has soared nearly 40%. Of course, those past gains are all water under the bridge. What's the best FAANG stock right now? There's a clear winner based on one key metric.
Pegging the leader
Meta Platforms ranks as the best FAANG stock of the year -- and it isn't a close contest. Its shares have skyrocketed more than 155%, with the impressive move fueled largely by strong quarterly updates.
NASDAQ: META
Key Data Points
Sometimes, the hottest stocks are the ones most likely to run out of steam. However, one metric indicates Meta could be the best-performing FAANG stock in the coming years, too.
The price/earnings-to-growth (PEG) ratio was popularized by legendary investor Peter Lynch (although he didn't come up with it). It's different from most valuation metrics in that it includes projected growth. The lower the PEG ratio, the more attractively valued a stock is relative to how much growth it's expected to generate.
One nice thing about the PEG ratio is that it can be used to compare stocks with different business models. Here's how the five FAANG stocks stack up against each other based on this metric (ranked from lowest to highest PEG ratio):
| Stock | PEG Ratio |
|---|---|
| Meta Platforms | 0.72 |
| Alphabet | 1.19 |
| Netflix | 1.68 |
| Apple | 2.24 |
| Amazon | 2.47 |
Data source: Yahoo! Finance. PEG Ratio = price/earnings-to-growth ratio.
Meta's PEG ratio is significantly lower than the other FAANG stocks. For investors looking for growth at a reasonable price, Meta stock looks like the best alternative in the group by far.
Two potential problems with the PEG ratio
So, can we conclude beyond any shadow of a doubt that Meta is the best FAANG stock right now? Not really. The reason is that there are two potential problems with the PEG ratio.
For one thing, the E in PEG ratio (earnings) can be misleading. Companies' earnings can sometimes be distorted by unusual revenue and/or expenses.
The bigger issue, though, is that the PEG ratio relies on estimates of future growth that can be way off. The PEG ratio values used to compare the FAANG stocks use growth projections for five years into the future. It's fair to say that those projections required a lot of guesswork that could turn out to be completely wrong.
That said, Meta does appear to be in good shape to deliver strong earnings growth in the coming years. The company is focusing heavily on increasing the monetization of high-growth areas of its social media platforms, such as Reels. Meta CEO Mark Zuckerberg recently stated that the company's "next major pillar" will be business messaging powered by artificial intelligence (AI). He predicted that Meta should be able to "grow the business messaging business in a big way."
Still plenty of bite left in all the FAANG stocks
Of course, it's easy to make the case that the other FAANG stocks will generate strong growth as well. AI seems likely to provide a massive tailwind for most of them.
Amazon and Alphabet should be clear beneficiaries of increased AI adoption as more organizations move to the companies' cloud platforms. Apple is investing heavily in generative AI (as are Amazon, Alphabet, and Meta). Amazon, Alphabet, and Apple could also profit if the self-driving car market really takes off.
Netflix expects operating margins to improve significantly in the coming years. The company's ad-supported streaming model should be a key growth driver. Gaming presents another big opportunity for Netflix.
The bottom line is that there's plenty of bite left in all the FAANG stocks. Meta could very well be the biggest winner over the next decade, but it's quite possible that another could separate from the pack.
