FANG Stocks
What are the FANG stocks?
The term FANG stocks was coined by CNBC’s well-known “Mad Money” host, Jim Cramer, in 2013. It is now widely used by market commentators, analysts and investors.
“FANG” is an acronym that refers to four of the world’s largest and most popular stocks: Facebook (which is now Meta), Amazon, Netflix and Google (which is now Alphabet). In 2017, Apple was added by many Wall Street analysts to this acronym, creating “FAANG.”
What Is FANG?
FANG stocks are all well-known and richly-valued technology companies that have shown extraordinary growth in recent years in both revenues and profits. The 5 FAANG stocks constitute a market cap of over $7 trillion.
Because of their large market caps, and since tech is seen as the cutting-edge sector for U.S. economic growth, the FANG stocks have a huge influence on both the NASDAQ index and the S&P 500, and are seen as an indicator of the health of the stock market as well as the economy.
So if you’re a passive index investor, you have a major exposure to FANG stocks whether you know it or not.
And while their business models do vary, each company has one common trait: the use of advanced technologies, such as artificial intelligence, to acquire and retain users.
These companies are all great beneficiaries of the network effect. This is the concept that the value of a product or service increases as the number of people who use that product or service increases.
Each of these companies has an enormous user-base, which:
- Generates more value for their products
- This leads directly to seller services becoming more attractive to third-party merchants
- All of this, in turn, leads to valuable data analytics and feedback to drive content and services
Bottom line – their extensive network of subscribers, members and users gives these companies an enormous competitive advantage.
Why Invest in FANG?
These companies also share another trait… despite exhibiting growth stock behavior, FANG stocks are less volatile than many stocks. When the stock market rebounds after a dip, it is these stocks leading the charge.
It is this relative stability – along with delivering superior rates of return over many years – that has made these stocks so attractive to investors.
Over the past decade, the FANG stocks have grown faster than the overall S&P 500 or the more tech-focused NASDAQ. These companies have grown to be the top stocks on the S&P 500 through innovation and service diversification, enabling them to weather market changes and recessions.
For example, during the pandemic in 2020, FANG stocks were up 43% compared to the rest of the tech sector that lost around 4%.
That’s why this group of stocks has become a barometer of the investment health of the overall technology sector.
How to Invest in FANG?
To gain exposure to FANG, investors may want to invest in the individual FANG stocks, options, or FANG ETFs. While most FANG ETFs are not exclusive to FANG stocks, the FANG stocks heavily influence the performance of the fund. And using an ETF may be a less volatile way to gain exposure to these stocks.
For help finding FANG stocks-related investments, make sure you check out the magnifi.com website to help you find the right ETF to meet your investment goals.
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Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Open a Magnifi investment account today.
The information and data are as of the January 17, 2022 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Natural Gas
What Is the Gas Industry?
Over millions of years, the remains of plants and animals (such as diatoms) built up in thick layers on the earth’s surface and ocean floors. Over time, these layers were buried under sand, silt, and rock. Pressure and heat changed some of this carbon and hydrogen-rich material into coal, some into oil, and some into natural gas.
Specifically focusing on natural gas (the cleanest fossil fuel), its largest component gas is methane, a compound with one carbon atom and four hydrogen atoms (CH4). Natural gas also contains smaller amounts of natural gas liquids (NGLs) and non-hydrocarbon gasses, such as carbon dioxide and water vapor.
Natural gas systems include wells, gas gathering and processing facilities, storage, as well as transmission and distribution pipelines. These components are all important aspects of getting natural gas out of the ground and to the end user.
Natural gas systems encompass the following industry segments:
- Production: Getting raw natural gas from underground formations.
- Gathering and Processing: This involves stripping out impurities and other hydrocarbons and fluids to produce pipeline grade natural gas that meets specified targets. Pipeline quality natural gas is 95% to 98% methane).
- Transmission: This encompasses delivering natural gas from the wellhead and processing plants to city gate gas stations and/or industrial end users. Transmission occurs through a vast network of high pressure pipelines. Natural gas storage falls within this sector. Natural gas is typically stored in depleted underground reservoirs, aquifers, and salt caverns.
- Distribution: Delivery of natural gas from the major pipelines to the end users.
Why Invest in Gas?
The reason for investing in the natural gas industry is very basic – increasing demand and limited supplies.
In its International Energy Outlook 2021, the U.S. Energy Information Administration (EIA) predicted a nearly 50% increase in global energy use from 2020 to 2050. This is primarily a result of projected economic and population growth in the developing world, particularly in Asia.
Global natural gas demand is forecast to grow by 50% to 5.92 trillion cubic meters by 2050 from 2019 levels, the Gas Exporting Countries Forum said about a year ago in its Global Gas Outlook.
Its forecast for gas demand growth is broadly in line with forecasts from other organizations on an annualized basis. The International Energy Agency (IEA) sees global gas consumption reaching 5.22 trillion cubic meters by 2040. S&P Global Platts Analytics forecast global gas demand at 5.29 trillion cubic meters in the same time frame.
LNG (liquified natural gas) is set for strong growth, as domestic supply in key gas markets will not keep up with demand growth. LNG demand is expected to grow 3.4% a year to 2035, with some 100 million metric tons of additional capacity required to meet both demand growth and decline from existing projects. LNG demand growth will slow, but will still grow by 0.5% from 2035 to 2050, with more than 200 million metric tons of new capacity required by 2050.
All this demand has run smack into a lack of investment in the industry.
Moody’s recently released research in which it found the energy industry will need to increase its capital investments by as much as 54% to avoid a major supply crunch in the coming years. The firm estimated that the $352 billion of industry capital investment during 2021 would need to rise to $542 billion in order to keep pace with new demand.
Moody’s report is consistent with earlier reports by Rystad Energy and Wood MacKenzie estimating the industry has been under-investing since 2015 in the finding and development of new reserves that will be needed to meet rising demand.
How to Invest in Gas
So how can you invest into the natural gas industry and its bullish fundamentals?
Exchange traded funds (ETFs) are one possibility, as is buying a futures contract or investing in natural gas stocks.
There are five natural gas ETFs to choose from currently. Please note that some ETF investments offer exposure to both the oil and gas markets simultaneously.
If you decide to invest in natural gas futures, keep your eyes peeled on Thursdays, when the U.S. Department of Energy releases its weekly natural gas storage report.
Lastly, investors can opt to invest in companies involved in the natural gas market. As with ETFs, many companies that are exploring for or producing natural gas are also focused on oil. It is difficult to find companies that are aimed purely at natural gas.
For help in finding natural gas-related investments, make sure you check out the magnifi.com website.
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Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Open a Magnifi investment account today.
The information and data are as of the January 10, 2022 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Oil Industry
Crude oil or petroleum are called fossil fuels because they are mixtures of hydrocarbons that formed from the remains of animals and plants (diatoms) that lived millions of years ago in a marine environment. Over millions of years, the remains of these animals and plants were covered by layers of sand, silt, and rock. Heat and pressure from these layers turned the remains into what we now call petroleum, which means rock oil or oil from the earth.
The vast majority of crude oil is refined and used by the transportation industry to power our cars, trucks, planes, boats, etc. Crude oil is also used for heating oil, petrochemical feedstocks, waxes, lubricating oils, and asphalt.
Oil is measured in barrels (bbl). One barrel is about 100–200 liters (26–53 gallons). According to the U.S. Energy Information Agency (EIA), in 2020, total U.S. petroleum production averaged about 18.375 million barrels per day, of which 11.283 million barrels per day of crude oil was produced.
What Is the Oil Industry?
After crude oil is removed from the ground, it is sent to a refinery where different parts of the crude oil are separated into usable petroleum-based products. These products include gasoline and distillates.
There are two benchmarks for oil globally. Here in the U.S., the benchmark is WTI (West Texas Intermediate). It is a light, sweet, high-quality crude that is easy to refine.
The other is Brent crude, which is the benchmark for European, African and Middle Eastern crude oil.
The term “sweet crude” refers to petroleum that has less than 1% sulfur content. Both WTI and Brent crude are lighter, or less dense, compared to other crude oils available. In addition, their sulfur content is well under 1%, making them simpler to refine into products like gasoline. Because of this, they sell for higher prices on commodity markets.
Why Invest in Oil?
The reason to invest in oil is straightforward – it remains the lifeblood of the global economy. The fossil fuel industry generates an estimated $3.3 trillion in revenue globally every year.
That’s because, to date, there are yet not enough sources of alternative forms of energy to power the global economy.
This is especially important in the light of the forecast from the EIA that global energy demand will rise by 47% over the next thirty years.
In addition, for various reasons, oil companies have NOT invested enough into finding enough oil to meet the world’s energy needs. This spending hit a 15-year low in 2020.
Moody’s estimates that global annual upstream spending needs to increase by as much as 54% to $542 billion to avert the next supply shock.
Another reason to invest in oil over the shorter-term is inflation and possibly stagflation.
Historically, oil and inflation often go hand-in-hand. In the 1970s, skyrocketing oil prices sent inflation soaring. This forced the U.S. Federal Reserve to raise interest rates to nearly 20% to stop inflation.
Oil stocks have historically done well in periods of low economic growth and high inflation (stagflation).
How to Invest in Oil?
There are three main areas in the oil industry in which you can invest. These are:
- upstream – this is the business of oil exploration and production (E&P)
- midstream – this involves the transportation and storage of oil
- downstream – this includes the refining and marketing of petroleum products
In the upstream segment – in addition to the E&P companies themselves – there are drilling firms that contract their services to extract the oil and well-servicing companies that conduct construction and maintenance activities on well sites.
These service firms are ‘safer’ than the E&P companies themselves, which are high risk. That’s because E&P firms have high investment capital outflow, extended duration times to locate oil and drill for it. Virtually all cash flow and income statement line items of E&P companies are directly related to oil and gas production.
The midstream segment is often a safer investment. These businesses are focused solely on transporting and storing oil. Midstream companies may include shipping, trucking, railroads, pipelines, and storage tanks. The midstream segment is characterized by high regulation (particularly on pipeline transmission) and low capital risk.
The downstream businesses are the refineries. These are the companies responsible for removing impurities and converting the oil to products for the general public, such as gasoline, jet fuel, heating oil, and asphalt.
In summary, oil is a vital cog for the well-being of the global population and a necessity for economic progress. It is also essential to our daily lives. We’re reliant on oil to power our cars and trucks and so many other necessary things.
A good way to invest in the industry is through exchange traded funds (ETFs). A number of which can be found on Magnifi.
Unlock a World of Investing
with a Magnifi Account
Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Open a Magnifi investment account today.
The information and data are as of the January 7, 2022 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.