While the tech giants that comprise the FAANG stocks continue to drive market returns in 2018, and fears of Amazon.com Inc.'s (AMZN) rising dominance keep shares of traditional industry retailers at a discount, one analyst on the Street has highlighted stocks for an "anti-FAANG portfolio."
The FAANG players, including social media giant Facebook Inc. (FB), Amazon, iPhone maker Apple Inc. (AAPL), on-demand streaming leader Netflix Inc. (NFLX) and Google parent company Alphabet Inc. (GOOGL) have been viewed as threatening industries from apparel and health care to media and retail grocery. As a result, investors have largely bought into the narrative of the eventual demise of long standing brick-and-mortars in the "age of Amazon" and online shopping.
However, Brian Milligan, lead manager of the Ave Maria Growth Fund, indicates that there are many companies well-positioned to either gain on the rising dominance of the FAANGs, or to successfully weather the storm and ultimately beat the broader market, as reported by MarketWatch. His picks include two auto industry stocks and two payments processing companies. The $579 million mutual fund has generated an average annual return of 10.9% over the past decade, compared to the S&P 500's 9.7% average yearly growth. (See also: Why Bridgewater Calls 2019 a 'Dangerous Year'.)
Milligan likes automotive parts retailer O'Reilly Automotive Inc. (ORLY), a company which is rapidly expanding its physical store locations in the U.S. to over 5,000. He sees the car components seller as shielded from the Amazon Effect, alongside its peers in the "non-Amazonable" home improvement and car parts industries. As a leader in the car parts industry, Milligan expects O'Reilly to gain on a trend for a movement of repairs from in-home to repair shops, and from some of the shops to auto dealers better equipped for high-tech repairs.
Auto auctioneer Copart Inc. (CPRT), which sells salvaged cars online, is Milligan's "favorite company" he has ever invested in. He expects the business of salvaging cars to continue to boom as insurers are more likely to consider a car "totaled," thanks to more high-tech components.
“The number of vehicles being totaled is going up by double digits, plus the average selling price per unit is going up in the mid-teens. The higher the price, the higher the service fee Copart earns,” said the investor.
As consumers increasingly move online to make a bulk of their purchases, payments processors such as Visa Inc. (V) and Mastercard Inc. (MA) have "tremendous room for growth," said Milligan. The two card companies are among the top holdings of the Ave Maria Growth Fund, and jointly control over 80% of total credit card spending in the U.S., according to Milligan. He views the payments processors as benefited from "strong incremental margins," with "tens of trillions of dollars of payment opportunities across cash/check, digital and new segments." (See also: How Goldman's Hedge Fund Picks Beat The Market.)