Many people are searching for an alternative to the FANG stocks because Mr. Market grossly overprices the FANGS. The NAMPOF could be such an alternative.
To explain, FANG stands for Facebook (NASDAQ: FB), Amazon (NASDAQ: AMZN), Netflix (NASDAQ: NFLX), and Google (NASDAQ: GOOG). Google is the popular nickname for the company now known as Alphabet (NASDAQ: GOOGL).
Ultimately, FANG stocks are expensive and questionable. In fact, none of the FANGS pays a dividend. Meanwhile, Netflix; which has a history of losing money, traded at $355.6 a share on 21 May 2019. Plus, Amazon was trading at $1,858.26 a share and Alphabet was trading at $1,148.94 on the same day.
My Alternative to FANG; NAMPOF
I call my alternative to the FANG; NAMPOF. In detail, NAMPOF stands for NVIDIA (NASDAQ: NVDA), Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), PayPal (NASDAQ: PYPL), Oracle (NYSE: ORC), and Facebook (NASDAQ: FB).
To explain, I fill the NAMPOF with growing tech companies I think Mr. Market undervalues. In addition, four of the six NAMPOFs; NVIDIA, Apple, Microsoft, and Oracle. pay dividends.
All of the NAMPOF companies are cash-rich. Moreover, I think each NAMPOF operates a growing platform that rakes in lots of cash. Conversely, FANG favorite Netflix burns cash like mad.
Finally, there is one FANG on the NAMPOF, Facebook. Facebook is there because it makes money; operates a growing platform, and has vast amounts unrealized potential. Plus, I believe recent hysterical news stories are damaging Facebook’s reputation, but not diminishing its intrinsic value.
Meet the NAMPOF
NVIDIA Corp (NASDAQ: NVDA)
NVIDIA is my favorite tech stock because it is more like a Warren Buffett value investment than a Silicon Valley heavyweight. To clarify, NVIDIA makes money by developing and manufacturing high-quality physical products like graphics processor units. Importantly, many of today’s hottest platforms and applications, including games, virtual reality (VR), artificial intelligence (AI), and even cryptocurrency run on NVIDIA hardware.
Specifically, NVIDIA reports a gross profit of $1.296 billion on revenues of $2.22 billion for the quarter ending on 28 April 2019. Plus NVIDIA reports a gross margin of 58.38%, an operating income of $358 million and a net income of $398 million for the same period.
Plus NVIDIA generates a lot of cash in the form of a $720 million operating cash flow, a $1.495 billion investing cash flow, and a $592 million free cash flow on 28 April 2019. Impressively, NVIDIA had $2.772 billion in cash and equivalents and $5.03 billion in short-term investments on 28 April 2019.
Plus, NVIDIA shareholders will receive a 16₵ dividend on 21 June 2019. NVIDIA offered shareholders a dividend yield of 0.41%, an annualized payout of 64₵, a payout ratio of 9%, and six years of dividend growth on 21 May 2019.
In the final analysis, I think Mr. Market underpriced NVIDIA at $154.2 on 21 May 2019.
Apple Inc. (NASDAQ: AAPL)
Like NVIDIA, Apple has a lot of non-tech attributes. Notably, it pays a dividend, generates a lot of cash and makes devices. Plus, Apple has a growing platform business. Apple TV had 25 million subscribers in March 2019, for example, Cult of Mac estimates.
More importantly, Apple reports a quarterly gross profit of $21.821 billion, an operating income of $13.415 billion, quarterly revenues of $58.015 billion and a quarterly net income of $11.561 on 31 Mach 2019. Those figures allow Apple to report an operating cash flow of $11.155 billion, an investing cash flow of $13.348 billion, and free cash flow of $8.792 billion for the same quarter.
Best of all Apple had $37.988 billion in cash and equivalents and $42.104 billion in short-term investments on 31 March 2019. Hence, Apple had $80.092 billion in cash and equivalents. As a result, the Apple dividend of 77₵ paid on 16 May 2019 is safe.
Mr. Market underpriced Apple at $185.1496 a share on 22 May 2019 making it a value investment. Hence, it is easy to see why Apple is one of the few tech stocks Warren Buffett owns through Berkshire Hathaway (NYSE: BRK.B).
Microsoft (NASDAQ: MSFT)
I like Microsoft because it is relatively cheap, cash-rich, growing, and pays a dividend, much like Apple. Currently, the best thing about Apple is its low price; $126.74 on 22 May 2019.
Microsoft owns several valuable platforms including Windows, LinkedIn, Azure, and GitHub. The business of Apps estimates 590 million people worldwide use LinkendIn, for example. GitHub is the world’s largest software marketplace with 96 million repositories, 30 million accounts, and two million organizational users, Hacker Noon’s Ake Gaviar estimates.
Best of all, Microsoft makes a lot of money from its platforms. Moneys Microsoft generates from software include $30.751 billion in revenues, $20.401 billion in gross profit, $10.341 billion in operating income, and $8.809 billion income reported on 31 March 2019.
Plus Microsoft rakes in vast amounts of cash in the form of $13.520 billion in operating cash flow, and $10.955 billion free cash flow on March 31, 2019. Such cash flows allowed Microsoft to accumulate the $131,618 billion in cash and equivalents it reported at the end of March 2019. Like Apple, Microsoft is a value investment and a money machine.
PayPal Holdings Inc. (NASDAQ: PYPL)
Payment processing is very lucrative at Paypal. PayPal reports a gross profit of $1.85 billion on revenues of $4.138 billion for the quarter ending March 31, 2019. Other attractive numbers at PayPal include an operating income of $518 million and a net income of $667 million on the same day.
Recent cash flows of $1.027 billion (operating), $1.502 billion (financing), and $809 million (free cash flow) show PayPal is running a lot of cash through its platforms. Lots of cash also stays at PayPal in the form of $4.515 billion in cash and equivalents and $6.39 billion in short-term investments at the end of March 2019. Consequently, PayPal had $10.705 billion in cash and short-term investments in Spring 2019.
PayPal’s real value; however, is in its platform which had 277 million active users at the end of 1st Quarter 2019, Statista estimates. Growth is also high with the number of active users increasing by 17%; from 205 million to 277 million between 1st Quarter 2018 and 1st Quarter 2019. Even though it pays no dividend, I think PayPal is a value investment that belongs on the NAMPOF.
Oracle Corporation (NYSE: ORCL)
Larry Ellison’s financial software money machine is a very lucrative tech stock most investors are unaware. Under those circumstances, I consider Oracle a classic value investment.
Oracle recorded a gross profit of $7.638 billion on revenues of $9.614 billion for the quarter ending on 28 February 2019. Attractive financial numbers at Oracle include a net income of $2.45 billion and an operating income of $3.399 billion for the same period.
Financial solutions generate a lot of cash at Oracle, in the form of investing cash flow of $13.199 billion, an operating cash flow of $2.861 billion, and free cash of $2.418 billion for that quarter. Oracle kept a lot of that cash in the form of $14.72 billion in cash and equivalents and $40.03 billion short-term investments on 28 February 2019. Stockrow reports Oracle had a cash stash of $40.03 billion on that day.
Investors received a dividend of 24₵ on 25 April 2019. That dividend grew from 19₵ paid on 20 January 2019.
Given these numbers, I believe Mr. Market underpriced Oracle at $54.4 a share on 22 May 2019. Oracle could be the best value investment because it is obscure, unappreciated, and undervalued.
Facebook (NASDAQ: FB)
Facebook is the least appreciated of the FANG stocks but I think it has the most growth potential of that bunch. Impressively Facebook operates four of the world’s top 10 social media platforms, Statista estimates.
Facebook’s mega platforms are Facebook with 2.32 billion users, WhatsApp with 1.6 billion users, Facebook Messenger with 1.3 billion users and Instagram with one billion uses. Correspondingly, Facebook owns four platforms with over a billion users each.
As a consequence, Facebook has 6.22 billion users, the largest audience in history; if Statista is correct. Yet could buy a share of Facebook for $185.49 on 22 May 2019.
Best of all, Facebook Facebook makes a lot of money. Impressive financial numbers at Facebook include a gross profit of $12.261 billion on revenues of $15.077 billion on 31 March 2019. Incomes include a net income of $2.429 billion and an operating income of $3.317 billion on the same day.
High cash flow is another attractive feature on Facebook. Impressively, the operating cash flow was $9.308 billion on March 31, 2019. Additionally, the free cash flow was $5.471 billion on the same day.
Mark Zuckerberg’s social media empire pays no dividend, but it has the resources to do so. Such resources include $11.076 billion in cash and equivalents and $34.167 billion in short-term investments on 31 March 2019. Resultantly, Facebook’s cash totaled $45.243 billion on the same day.
All this makes Facebook an undervalued and cash-rich company with vast amounts of growth potential, I think.
How to Use the NAMPOF
Please note: I intend the NAMPOF as a suggestion and food for thought. Please, undertake your own research and think for yourself when investing.
Investors should understand that there are many other potential value tech investments out there including Electronic Arts Inc. (NASDAQ: EA) these days. Given these circumstances, I think Silicon Valley is becoming a value hunters’ paradise for those willing to look carefully.