Portfolio manager Brian Milligan is skeptical of the FAANG-mania that’s arisen in the past few years.
Milligan is lead portfolio manager of the Ave Maria Growth Fund (AVEGX), which seeks long-term capital appreciation, using the growth style, from equity investments in companies that do not violate core values and teachings of the Roman Catholic Church. The fund has around $671 million in net assets and an expense ratio of 0.97%.
“It’s been tempting over the last five years for a lot of investors to buy this hyper growth,” Milligan told ThinkAdvisor. “It’s been easy too. Buy [FAANG], let it run.”
However, Milligan has found that there are plenty of alternative options beyond the FAANGs that have business models just as strong, but with better cash flow visibility.
Here are Milligan’s top “Anti-FAANG” stock picks:
1. MasterCard (MA) and Visa (V)
With the growth of e-commerce continuing, Milligan likes MasterCard (MA) and Visa (V).
Currently the credit card companies — which Milligan looks at as one position because they’re highly correlated — are the largest holdings in the growth fund he manages.
MasterCard and Visa control more than 80% of card spending in U.S. And Milligan believes there is room for growth, with tens of trillions of dollars of payment opportunities across cash/check, digital and new segments.
“We believe Amazon is going to grow. We believe that e-commerce is going to grow,” he told ThinkAdvisor. “And we think Mastercard and Visa are absolutely going to benefit from it.”
Milligan also thinks the innovation happening in the payment space will also benefit the card companies.
“They’re really doing innovation at the merchant level or the user level — making it easier to use electronic payment, non-cash, non-check,” he said. “But they’re still using Visa/Mastercard to do that.”
For example, Milligan said that PayPal was originally considered a threat, but they’re now more of a partner because they’re expanding alternatives to paying in cash.
2. Ansys (ANSS)
Ansys, headquartered south of Pittsburgh, is a global leader in engineering simulation.
The technology company offers a broad portfolio of software that can help solve complex design challenges and create products.
Ansys’ simulation-driven product development helps verify how new products will work before making a prototype.
“If you take an example of the automotive space, there’s been historically a lot of physical prototyping,” Milligan said. “What simulation does is it cuts down on the amount of prototypes you do, especially at the front end of the process.”
According to Milligan, simulation makes the process a lot faster and cheaper.
Milligan also thinks engineering simulation, and companies like ANSYS that do it, will benefit from the trend toward autonomous and electric vehicles.
“With autonomous and electrification of vehicles, it’s important to do a lot of testing,” he explained. “Simulation allows you to do many miles of simulation that wouldn’t be possible.”
Ansys, which was founded in 1970, employs thousands of professionals, many of whom are master’s- and doctorate-level engineers in finite element analysis, computational fluid dynamics, electronics, semiconductors, embedded software and design optimization.
3. Texas Instruments (TXN)
Another FAANG-like stock that Milligan likes is Texas Instruments. Texas Instruments Inc. is a global semiconductor design and manufacturing company that develops analog ICs and embedded processors.
“They’re really good capital allocators,” Milligan explained to ThinkAdvisor. “We like that they understand what their stock is worth. They understand how to make investments organically, versus buying back the stocks.”
Milligan also thinks the management team is “solid.”
“They made a decision a few [or more] years ago, it was a shift away from consumer electronics, which are shorter product cycles [and a] much more competitive market,” he said. “They decided to invest in industrial and automotive end markets, which we think was a very smart decision.”
According to Milligan, an industrial product has a much longer product cycle.
“Once you get your products in that system, you’re going to be in it for decades,” he added.
4. SBA Communications (SBAC)
SBA Communications Corp. is an independent owner and operator of wireless communications infrastructure, including towers, buildings, rooftops, distributed antenna systems and small cells.
“Years ago, all the telecoms — Verizon, AT&T,and so forth — basically sold their towers. Terrible decision on their part to sell their towers,” Milligan said.
SBA — and two other similar tower companies American Tower and Crown Castle — have the vast majority of the market. Because of this, Milligan said that SBA has good pricing power.
SBA generates revenue from two primary businesses: site leasing and site development.
With site leasing, SBA leases antenna space on its multi-tenant towers and other structures to a variety of wireless service providers under long-term lease contracts. With site development, SBA can assist wireless service providers and operators in developing their own networks through site acquisition, zoning, construction and equipment installation.
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