Many investors try to grow their net worth by passively buying shares of blue-chip tech stocks such as Facebook, Apple, Amazon, Netflix, and Alphabet (FAANG). This investment strategy may have yielded significant returns in the last few years. However, it appears that their upside is now limited.
In a Bloomberg interview, Mark Stoeckle, chief executive officer of Adam Funds revealed that the days of outperforming the broader market by simply investing in FAANG stocks are over. He added,
The positive narrative is now broken. Momentum investors are looking at these stocks in a different way than they used to.
The Wall Street Journal also noticed that FAANG stocks are losing their bite. According to the publication, owning FAANG shares ‘has given investors little upside over the past 12 months.’
Stoeckle has a suggestion for investors:
[F]ind better stocks, both in tech and outside of tech, that offer better growth, or better valuations, or fewer risks.
Inside of tech, there’s a little known stock that has been quietly making gains over the years.
Automation Solutions Provider Making Big Money Through Disciplined Capital Deployment
Brooks Automation (BRKS) is a supplier of automation solutions to clean energy, life science, and semiconductor manufacturing companies. The tech firm’s stock price is up by over 328 percent in three years.
While there are technical reasons behind the surge of share price, the company’s robust fundamentals appear to be driving investor sentiment.
For instance, user Riggs Bud took to Twitter to share how Brooks Automation deployed its capital over the last five years.
$BRKS capital allocation over the last five years.
Importantly all of this has been done with zero current leverage on the Balance Sheet (Cash generation + divesting non-core assets) pic.twitter.com/iDd1Mh4pPd
— Riggs_Bud (@Riggs_Bud) September 5, 2019
According to the Twitter user, capital expenditure, R&D investments, acquisitions, as well as quarterly dividends
has been done with zero current leverage on the balance sheet.
Looking at the firm’s balance sheet, its cash and short-term investments went from $102 million in 2017 to $244 million in 2018. That’s a growth of over 140 percent in one year.
It also helps that revenue and net income are skyrocketing. Based on the firm’s income statement, sales grew by over 19 percent from 2017 to 2018. More importantly, net income rose by a whopping 534.68 percent in the same time period. This is due to favorable income tax conditions.
These numbers tell us that the company is not only generating profits, but they’re also investing in assets that can supercharge long-term growth while rewarding shareholders.
Analyst: ‘Brooks Automation Has Been in a Strong Trend for Over 3 Years Now’
As for technical reasons why the stock is rising, Ian McMillan, CMT, a market technician at ClientFirst/Adaptive spoke to CCN to share his bullish view on the stock. He noted:
Brooks Automation has recently topped out around $43/share, selling off, and then bouncing off longer-term trend support. If you’re a fan of the name, this dip is a great opportunity to step in.
The market technician then added:
The stock really needs to move beyond previous highs and through that $43 area. With that being said, we are a far cry from the all-time highs we saw in 2000 at roughly $90, so the potential is there for much, much higher upside.
In comparison to FAANG stocks, it appears that according to fundamentals and Ian McMillan’s technical analysis, Brooks Automation may offer more upside potential.