Hold on "FANG" stocks: Bank of American Merrill Lynch just added two more names to the popular simple portfolio after finding multiple stocks that share their tremendous growth potential. You can now call it "FAAANG."
Strategist Savita Subramanian added Broadcom, with its ticker 'AVGO,' and Adobe (ADBE) to the popular Wall Street acronym after screening large-cap technology stocks for ones with similar features.
Just like the original FANG list, her additions include stocks that have sales growth of 20 percent or higher, expected long-term growth rates of 15 percent or higher, and market cap over $65 billion, according to the strategist.
The stocks have had high-flying market success and lofty valuations, making them easy targets for skittish profit-takers should the stock market turn sour. But the companies have also posted continued sales growth and corresponding share price growth, making them enticing opportunities for investors.
The original FANG stocks are all up over 20 percent since January, with Facebook leading the group with a 48 percent year-to-date share price climb. But Adobe and Broadcom have also notched sizable gains, up 36 percent and 44 percent respectively.
The strategist also noted that the short interest on the FAAANG group is near a record low of 0.9 percent.
Short interest is the quantity of stock shares that investors have sold short but not yet covered or closed out. It is often used as a sentiment indicator that tells whether investors believe a stock's price is likely to fall.
"Over the last several years, buying the most underweight stocks and selling the most overweight stocks has consistently generated alpha, although performance in 2017 so far has bucked the trend," the strategist explained. "Historically, large Core mutual funds have had a bias toward smaller cap stocks within the benchmark – reasons include that it requires more dollars allocated to be overweight a mega-cap stock than a mid-cap stock."
Alpha is defined as the excess return of a portfolio relative to a market benchmark's performance.