It Should Be FAAANG, Not FANG: BofAML

Broadcom Corp. (AVGO) and Adobe Systems Inc. (ADBE) deserve to be included in the same grouping as Facebook Inc. (FB), Amazon.com Inc. (AMZN), Netflix Inc. (NFLX) and Google-parent Alphabet Inc. (GOOGL) — the so-called FANG stocks — Bank of America Merrill Lynch has argued.

Savita Subramanian, a strategist at the Wall Street firm, believes that FANG, an acronym created by Jim Cramer to highlight the four most popular and best-performing technology companies, should be changed to FAAANG to accommodate the equally good growth prospects of Broadcom and Adobe.

According to CNBC, Subramanian came to this conclusion after screening large-cap technology companies with similar attributes to the original FANG stocks. The strategist sought to identify stocks with a market cap in excess of $65 billion that boast sales growth of 20 percent or higher and expect long-term growth rates of 15 percent of more. Software company Adobe and semiconductor specialist Broadcom passed the test with flying colors.

Like Facebook, Amazon, Netflix and Alphabet, the original FANG stocks, Adobe and Broadcom’s growth prospects haven’t gone unnoticed by investors. Broadcom’s shares are up 44 percent over the past year after the semiconductor giant registered impressive growth across its three business segments, wired infrastructure, wireless communications and enterprise storage.

The company’s status as the chip supplier for Apple Inc.'s (AAPL) iPhones and exciting product launches in the mushrooming enterprise storage market are fueling expectations that further earnings growth is in store. Jim Cramer recently described Broadcom as the best iPhone play, while Angelo Zino, senior industry analyst at independent research firm CFRA, said the company is "among the most attractively valued chipmakers.”

Adobe is also on a tear. Earlier this month, the software giant announced better-than-expected fiscal third-quarter 2017 results, including healthy cash flow and soaring demand for its cloud-based subscription products. Encouraging forward guidance suggests the company expects this strong spell to continue and helps to explain why investors have bid the shares up 36 percent over the past 12 months. (See also: Why Adobe's Investors Are Dancing on Cloud 9.)

The increasing popularity of these so-called FAAANG stocks has caused discomfort among some Wall Street observers. Bears believe that these companies are now priced for perfection, warning that the slightest hint of bad news could prompt nervy investors to quickly take profits.

However, Subramanian believes that these concerns have yet to gain much traction, noting that short interest on FAAANG stocks is near a record low of 0.9 percent.