This is one of the most well-known categories of stocks and one that tracks the largest, blue chip tech companies. Unlike other categories that can be somewhat arbitrary, the group of FAANG stocks is limited and specific. FAANG is an acronym that is comprised of the first initial of an elite group of technology stocks that includes Facebook (NASDAQ: FB), Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL), Netflix (NASDAQ: NFLX), and Alphabet which is the parent company of Google (NASDAQ: GOOGL).
One common denominator of all FAANG stocks is that they trade on the NASDAQ stock exchange but they also make up approximately 1% of the S&P 500 Index, which is considered to closely approximate the broader stock market. In terms of weighting in the S&P 500, three of the five FAANG stocks are in the top ten.
In contrast to blue-chip stocks, FAANG stocks are still growth stocks. This means that these companies choose to reward their shareholders by investing their profits into growing their business as opposed to returning it to shareholders as dividends or share buybacks.
The FAANG stocks are among the most expensive stocks to own in terms of share price. And while they may represent a good value, it may be hard for the average investor to buy individual shares but that is changing. Many FAANG names have had stock splits to lower the share price.