3 Reasons FANG Stocks Will Bounce Back

It was a rough week for the four titans of tech that have emerged as market darlings in recent years. Shares of Facebook (NASDAQ: FB), Amazon.com (NASDAQ: AMZN), Netflix (NASDAQ: NFLX), and Google parent Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) -- collectively called FANG stocks -- took a step back during the holiday-abridged week.

  • Facebook: down 7.2%
  • Amazon: down 3%
  • Netflix: down 6.3%
  • Alphabet: down 4.4%

The four stocks lost an average of 5.2%, a far cry from the S&P 500's comparable 1% slide during the same four trading days. A common observation among financial journos is that sector rotation is the culprit. Investors are moving away from the four stocks, which have delivered scintillating returns over the past few years. FANG has fallen out of fashion, but let's go over some of the reasons why the sell-off last week was overdone.

1. FANG companies remain as relevant as ever

There were plenty of things weighing on the four companies that make up the FANG universe. Facebook was testifying on Capitol Hill, explaining what it will do to make sure that nefarious forces don't try to influence users leading up to November's midterm elections. Alphabet was also invited, but chose not to attend.

Netflix took a hit after an analyst offered up some rosy growth prospects for a Netflix rival that hasn't even been launched yet. Amazon held up the best among the four entities -- even briefly topping $1 trillion in market cap for the first time earlier in the week -- but it seems as if CEO Jeff Bezos can't escape political heat coming from the left and the right.

The four names might not seem to be at their best right now, but they continue to pad their leads in their respective markets. Is there anyone really gaining ground on Facebook in social networking, Amazon in e-commerce, Netflix in premium streaming video, or Google in search? The four companies are at the top for a reason.

2. These darlings bounce back

The collection of FANG stocks has been called a bubble and corrected in the past, only to bounce back in stellar fashion. It's hard to be optimistic in the middle of a slide, and in the case of Facebook and Netflix we're talking about stocks that are down 25% and 18%, respectively, off their summertime highs. They've bounced back before. They should bounce back again.

All four stocks hit fresh all-time highs this summer, including Amazon, which hit a new high-water mark earlier in the week. The markdowns may be warranted, particularly when it comes to Facebook and Netflix. Facebook's ability to share data and to target users for marketing missives with pinpoint precision will be challenged in the future. Netflix fell short of its own guidance in its latest quarter. It's not a good look in either camp, but they've overcome more-troublesome setbacks before.

3. The power of scalability goes to the victors

The market was disappointed to see Netflix add just 5.15 million net new subscribers in its latest quarter, but is there another premium service landing as many paying users in that time? Facebook tacked on roughly 20 million daily active users in the second quarter -- a historically sluggish showing -- but is there another platform actually gaining on Facebook that it doesn't already own?

There is a reason Google has the most advertisers on its platform. And how long can you go before leaning on Amazon for your shopping needs? The bigger these companies get, the smarter and more efficient they become. The stocks fell out of favor last week, but it's not a life sentence. FANG will bounce back.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Rick Munarriz owns shares of Netflix. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Facebook, and Netflix. The Motley Fool has a disclosure policy.