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October 22, 2018 at 10:30 AM
Portfolio manager Brian Milligan is skeptical of the FAANG-mania that’s arisen in the past few years.
Facebook, Apple, Amazon, Netflix and Alphabet (Google) — the so-called FAANG stocks — were up 36% on average a year ago. The popular stocks have recently seen selloffs.
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.”
