Trading Nation

One FANG stock could rally another 40% before it gets overvalued, trader says

Trading Nation: FANG stocks fall
Trading Nation: FANG stocks fall

One of the FANG stocks is not like the others this month.

While Facebook, Amazon and Netflix have slumped, Google parent Alphabet has soared. The tech giant is also the only FANG stock that's positive this quarter.

Despite Alphabet's outperformance, Mark Tepper, president of Strategic Wealth Partners, is sticking with another FANG stock above the rest.

"By far my favorite of the bunch is Amazon," Tepper said Friday on CNBC's "Trading Nation."

He said its three-pronged focus on e-commerce, cloud computing and advertising elevates it as a company and pushes it above the rest as a portfolio must-have.

"From an e-commerce standpoint, nobody can match them when it comes to price and convenience. Yes, they're spending some money right now on one-day shipping but that's a short-term drag and that's actually going to make them much, much stronger in the long run," Tepper said.

He adds that its high-margin businesses in the cloud and advertising spaces have helped it drive growth in recent years. Amazon Web Services, which includes its cloud computing business, reported a more than 45% annual increase in revenue for 2018.

"It's trading in the mid-$1,700s right now. We think fair value is somewhere between $2,000 and $2,400 so plenty of upside here," said Tepper.

A move to $2,400 implies 39% upside from current levels. It would also mark a new all-time high.

The FANG stocks have struggled to break out to highs. This could continue to put the brakes on the broad market, said Craig Johnson, chief market technician at Piper Jaffray.

"You can see here that like the market, they're not breaking out to all-time new highs. This has been leadership in the past. It's not really leadership now. But if that's not breaking out, it's going to be a bit of a headwind for the market," Johnson said during the same segment.

Alphabet, however, looks like it can break away from the group and rally independently, he said.

"This is a stock that has been consolidating in a range of about $1,300 at the upper end, $1,000 at the lower end," Johnson said. "I suspect that you're going to see Google continue to work its way up, and the FANG stocks are probably going to continue to move in opposite directions."

Alphabet is up 13% this quarter, and 17% this year. It remains more than 5% from all-time highs.

Disclosure: Strategic Wealth Partners has a position in FB, AMZN, NFLX and GOOGL.