Tech Profits: Looking Beyond the FANG Stocks

[Zacks | Our Research. Your Success.] WeekendWisdom Tactics that Work in Good Markets and Bad [Brian Bolan - Editor] Tech Profits: Looking Beyond the FANG Stocks By: Brian Bolan February 11, 2023 --------------------------------------------------------------- FANG stocks have dominated financial headlines and rewarded shareholders for several years now. Most people have heard of the "FANG" stocks. The term was made popular by a TV personality when asked about his top picks for investors. The "F" stands for Facebook, at least that much is certain. But the other letters are somewhat interchangeable. Facebook is owned by Meta Platforms (META) but the idea still remains the same. In the original version of FANG, "A" stood for Amazon, but I’ve also been hearing that Apple could be an "A" stock. Following the “A” is the "N", which usually stands for Netflix, but more recently has been replaced by NVIDIA. Finally, the "G" stock has been known to reference Google, but following the inception of FANG, Google changed its name to Alphabet, making that "A" a crowded spot! Overwhelming Popularity The overwhelming popularity of FANG has resulted in many solid tech stocks and names not getting the attention they deserve, leaving them in the dust. This is illustrated by the volume of shares being traded in the FANG names, alongside the volume of non-FANG names. There is a whole universe of stocks that do not fit in the narrow FANG category. Supplier Plays A good way to think about all the other tech names out there is to choose just one of the big names and then look at their suppliers. The logic is easy to follow: if the biggest player is doing well, then the smaller suppliers are direct beneficiaries. Because the suppliers are much smaller than the bigger companies they serve, they can see outsized moves. Think of it this way: it takes a lot to move a $100B company by twenty percent. But a smaller supplier, in contrast, is likely only a fraction of that size and could easily double or triple on that move. There are plenty of suppliers for the FANG stocks. Picking the right ones is the challenge. A good rule of thumb is to look for the suppliers that have the strongest margins. Those suppliers tend to have the best bargaining position when it comes to working with the big boys. A good example is Ultra Clean Holdings Inc. Massive tech companies need microprocessors to power their servers and devices. Ultra Clean helps design, test and clean these chips before they are sent off to customers. Continued . . . [Must-See Tech Stocks With Huge Potential]( Technology is being developed and embraced at blinding speed. A small number of innovative companies are creating the world of tomorrow and appear poised for exceptional growth today. Zacks is targeting maximum profits with triple- and even quadruple-digit potential. Recently, we’ve closed tech stock gains as high as +1,007%. You're invited to see our latest recommendations – including 1 brand-new pick on Monday morning. Special opportunity ends Sunday, February 12. [See Our Breakout Tech Stocks Now »]( Under The Radar With FANG being on everyone's radar, a good way to add some diversification into your tech portfolio is to buy stocks that have little or nothing to do with FANG. This means you need to get off the beaten path and really look for something different. Oftentimes, under-the-radar names are really only under the radar for a quarter or two. After reporting earnings beats, stocks have a way of gaining a lot of visibility. It is important to remain diligent about looking for something most people are not. I like to look for a good earnings history from the smaller names. This tells me that management can effectively communicate their strategy to Wall Street and then only give them positive surprises. Negative surprises can send shares lower by 20% or more. What We Really Want Having a good earnings history is only the start of our stock selection process. For the best results, we leverage the Zacks Rank to find stocks that have seen recent earnings estimate revisions. This will get us off on the right path immediately. Tech stocks that are best of breed often carry the best margins as well. I like to invest in tech stocks that have a strong margin profile. At the same time, I need to see margin improvement over the last few years as well. These companies have to continuously improve their position in the marketplace. Finally, I like stocks that beat and raise. It is like 6 months of good news all in one day. The last three months were better than expected (as witnessed by the earnings beat). The next three months are going to be better than expected (as witnessed by the raise in guidance). Combine those two factors together, and you have a great chance for a post earnings drift higher. Silicon Labs is a recent example of this kind of scenario. On February 1, the company beat earnings estimates and management raised guidance for the next quarter. SLAB picked up a quick +20% on the news. And the stock is up +37% for the year. Finding Non-FANG Stocks With Teeth If you'd like to target promising stocks like the ones we've talked about today, from small-cap supplier companies to under-the-radar firms set to shake up entire industries, I invite you to check out Zacks [Technology Innovators]( portfolio. We'll be looking beyond the FANGs to find a tight selection of cutting edge tech companies that are creating the world of tomorrow. Our aim is long-term triple-digit gains. I'm ready to pull the trigger on a brand-new pick on Monday. Last week, this little-known company smashed earnings expectations… announced record-breaking gross margins… and bumped up its dividend. It’s in a redhot sector poised to gain even more momentum in the coming months. I believe investors who get in now will be very happy they did. You can be among the first to see this pick on Monday. Plus, you’ll also have the chance to immediately access live picks inside the Technology Innovators portfolio. Please note: We must limit the number of investors who receive these recommendations. Access closes Sunday, February 12 at midnight. [Look into Technology Innovators now »]( Good Investing, [Brian Bolan - signature] Brian Bolan Zacks Strategist Brian Bolan is our aggressive growth expert and the editor of the [Zacks Technology Innovators]( portfolio. ¹ The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position. This free resource is being sent by [Zacks.com](). 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