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Wall Street eyes earnings stabilizer after FAANG stocks wobble

Reuters 

By Sinead Carew

(Reuters) - Wall Street is hoping that first-quarter earnings growth and corporate forecasts are strong enough to bring the FAANG group of stocks back into favour and take the spotlight off worries that caused the recent sell-off in the high-flying group.

With valuations below recent peaks, the group - comprised of Facebook, com, , and parent - could get some relief if the companies beat, or at least meet, Wall Street estimates.

Shares in the group, which led the to record highs in January, often trade together. They were pummelled late in the quarter on worries about a data privacy scandal at and U.S. Donald Trump's public criticism of com . On top of this, fears of a trade war with escalated during the quarter.

For the group, analysts expect average first-quarter year-over-year earnings growth of 25.8 percent, up from 12.4 percent growth in the fourth quarter and a 12.8 percent increase a year ago, according to data.

"All we're getting now is negative ... once we start to see the numbers, you're going to see a bigger spotlight on the success these companies are having," said Daniel Morgan, at in Atlanta, which holds shares in the FAANG stocks.

Morgan says he is in a wait-and-see mode until after the first report from Netflix, which is due to be issued on Monday. Analysts expect earnings growth of 59 percent and revenue growth of 39 percent, according to data.

The entire group was hurt by fears that and other including would face onerous regulations or slowing advertising revenue growth after said nearly 87 million of its members' personal data was improperly leaked.

fell almost 24 percent below its early February record to hit $149.02 on March 26, its lowest point since July last year, due to the scandal. had fallen almost 18 percent below its late January record by March 28.[nL2N1RH1C6]

Peter Tuz, of in Charlottesville, said the $76-million Chase Growth fund cut its investments to 1.8 percent from 3.1 percent of its portfolio due to the scandal. Tuz may stay on the sidelines until there is more clarity on Facebook's prospects.

"If fundamentals remain strong with usage staying strong and the company doesn't get hit with any severe fines or regulations we might very well buy again," said Tuz, whose firm also owns com, Apple and shares.

"We feel good about three out of the five FAANGs- Amazon, Apple, Google," he said.

com stock was hurt by criticism from U.S. Donald Trump, who said he would take a serious look at what he claimed were the online retailer's unfair advantages with taxes and shipping rates. It fell 16.3 percent between March 13 and April 4.[nL2N1RI0QE]

The was also hammered by fears of a trade war with China, a big source of revenue. Apple derived about 20 percent of its revenue from in its fiscal year 2017. Investors seek details how big the financial risks are in the face of events such as a trade war, new regulations or a stronger dollar.

"The guidance will be more important," said Robert Phipps, a at Per in Austin, referring to comments on quarterly conference calls about the potential financial impact of all these issues.

But Patrick Palfrey, at in is mainly focused on strong estimates for the sector, which has posted impressive growth "time and time again."

"I can't help but look at the group and have a positive outlook even with the current uncertainties," said Palfrey.

Fund flow data shows investors were warming up to the sector again. Science and showed inflows of $152 million on the week ending April 11 after outflows of $610.9 million the previous week, which had marked the first weekly retreat since early February, according to Lipper data.

has risen about 11 percent from its most recent low while has climbed 5 percent above its recent trough; Apple is roughly 6 percent higher than its early April low, as is com. has gained about 15 percent in the last 7 sessions.

Options trading flows suggest that much of the fear of the recent sell-off has faded. But while bears have been exiting positions, bulls have yet to make a big move into the space.

Open options contracts on key sector exchange-traded funds, PowerShares QQQ Trust and , show investor preferences for puts at or close to multi-month lows, according to Trade Alert data. Put options give investors the right to sell shares at a certain price in the future and are often used as a hedge.

"Investors have been buying the dip a little bit, but in very small sizes, without very large conviction, until they see the earnings," said Ilya Feygin, at WallachBeth Capital LLC, in Jersey City,

(Additional reporting by in New York; Editing by Nick Zieminski)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Sat, April 14 2018. 01:01 IST
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