Recession hysteria is running wild in the United States. Media fearmongers are frightening Americans with claims that 9.1% inflation and slowing economic growth mean a recession has begun.
Predictably, many Americans will wonder if popular stock groupings such as the FAANG are recession-proof or recession-resistant? To elaborate, FAANG stands for Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Google (GOOG).
Interestingly, the term FAANG is inaccurate because Facebook is now Meta Platforms and Google is Alphabet (GOOGL). However, FAANG sounds better than MAANA, so we’ll stick with FAANG.
Is FAANG Recession Proof?
No stock, company, or industry is recession-proof. Inflation and recession can hurt any business. Hence, investors need to seek not companies that cannot be hurt, but the companies a recession hurts the least.
In other words, you need to seek companies that are recession-resistant rather than recession proof. I think the FAANG companies are recession-resistant because they accumulate enormous amounts of cash.
For example here are the latest cash and short-term investment numbers from the FAANG stock.
- Facebook (NASDAQ: FB) – $43.89 billion on 31 March 2022.
- Amazon (NASDAQ: AMZN)– $66.594 billion on 31 March 2022.
- Apple Inc. (NASDAQ: AAPL) – $51.511 billion on 31 March 2022.
- Netflix Inc. (NASDAQ: NFLX) – $6.009 billion on 31 March 2022.
- Alphabet Inc. (NASDAQ: GOOG)– $133.970 billion on 31 March 2022.
Hence, the FAANG companies had $301.974 billion in cash and short-term investments on 31 March 2022. I think that makes them recession-resistant. However, there is one FAANG I’m skeptical of and that’s Netflix. As you can see Netflix had only $6.009 billion in cash and short-term investments. I have to wonder why Netflix was a FAANG.
Are the FAANGS inflation-resistant?
The recession may not be here yet, but inflation certainly is. The US Labor Department estimates the US inflation rate was 9.1% for the 12 months ending in June 2022.
That is the highest inflation-rate since November 1981, years before four of the five FAANGs began. The only FAANG in existence in November 1981 was Apple. The other FAANGs have never had to deal with this level of inflation.
I think an inflation resistant company has a level of revenue growth that exceeds the rate of inflation. To explain, a company grows if its revenue growth rate exceeds inflation. If the revenue growth is below the inflation rate, the company’s moneymaking capacity is shrinking.
Hence, the FAANGs’ revenue growth rate could show how inflation resistant they are. Here are the FAANG revenue growth rates for the quarter ending on 31 March 2022:
- Alphabet (NASDAQ: GOOG) – 21%
- Meta Platforms Inc. (FB)– 64%
- Netflix Inc. (NFLX) – 9.84%
- Amazon (AMZN)– 3%
- Apple (NASDAQ: AAPL) – 8.21%
I think inflation is a threat to the FAANGs because only one FAANG, Alphabet, has a revenue growth that significantly exceeds inflation. Moreover, only two FAANGs, Alphabet and Netflix had revenue growth rates that exceed inflation.
An Inflation and Recession Resistant FAANG Alternative
Personally, I think only one FAANG, Alphabet (GOOGLE) is both recession and inflation-resistant. To explain, Alphabet has both a high rate of growth and an enormous amount of cash.
Fortunately, other tech companies display those attributes but they are not FAANGs. Those companies include:
Microsoft (NASDAQ: MSFT) – Microsoft had a quarterly revenue growth rate of 18.35% and $104.693 billion in cash and short-term investments on 31 March 2022.
NVIDIA Corporation (NASDAQ: NVDA) – NVIDIA had a quarterly revenue growth rate of 46.41% and $20.338 billion in cash and short-term investments on 31 March 2022.
Salesforce Inc. (CRM) – Salesforce had a quarterly revenue growth rate of 24.28% and $13.503 billion in cash and short-term investments on 30 April 2022.
There are also companies with partial inflation and recession resistant. They are PayPal (PYPL) and Oracle (ORCL).
Oracle Corporation (NYSE: ORCL) had $21.902 billion in cash and short-term investments and a quarterly revenue growth rate of 31 May 2022 of 5.45%.
PayPal Inc. (NASDAQ: PYPL) had a 5.65% quarterly revenue rate and $7.965 billion in cash and short-term investments on 31 March 2022.
A Better FAANG Alternative
Hence, an index of some of these stocks could be better than the FAANG. For instance, I played around with an index called NAMPOF, which would now be NAMPOM. My NAMPOM contains NVIDIA (NVDA), Apple (AAPL), Microsoft (MSFT), PayPal (PYPL), Oracle (ORCL), and Meta Platforms Inc. (FB).
Today I will add Salesforce (CRM) and Amazon (AMZN) to create NAAMPOMS, NVIDIA, Apple, Amazon, Microsoft, PayPal, Oracle, Microsoft, and Salesforce.
I consider NAMPOMS, inflation and recession resistant because it contains cash-rich and high-growth stocks. Three NAAMOMS, NVIDIA, Microsoft, and Salesforce are high growth. Similarly, Amazon, Microsoft, NVIDIA, and Apple are cash-rich companies.
I believe PayPal, and Oracle could be capable of high growth and generating enormous amounts of cash in the future.
Mr. Market moderately prices all of these stocks. Mr. Market paid $157.62 for NVIDIA, $167.38 for Salesforce, $73.91 for Paypal, $113.55 for Amazon, $164.70 for Meta Platforms, $50.17 for Apple, $70.74 for Oracle, and $256.72 for Microsoft on 15 July 2022. I think Alphabet was too expensive at $2,235.55 on 15 July 2022.
Additionally, Microsoft, Apple, NVIDIA, and Oracle pay dividends. For example, Microsoft has scheduled nine 62₵ quarterly dividends through 8 June 2024. NVIDIA has scheduled eight 4₵ quarterly dividends through 1 July 2024. Apple has scheduled seven 23₵ quarterly dividends through 12 February 2024. Finally, Oracle has scheduled seven 32₵ quarterly dividends through 26 April 2024.
Hence, the NAMPOMS could be a recession and inflation-resistant FAANG alternative that pays dividends. Thus, I think all investors who want to protect their money from inflation and recession need to investigate the NAMPOMS.
