Five Large-Cap Stocks That Catapulted the Nasdaq in 2015

It was a bumpy end to a lackluster 2015 for U.S. stocks. While the S&P 500 and the Dow snapped a multi-year winning streak to end in negative territory for the year, the Nasdaq ended in the green. The tech-laden index gained for four years in a row, its longest winning streak since 2007.

Strong gains from four of the most sought after components of the index – labeled as “FANG” – dominated the market and juiced up the Nasdaq. These stocks include Facebook, Inc. (FB - Analyst Report), Amazon.com, Inc. (AMZN - Analyst Report), Netflix, Inc. (NFLX - Analyst Report) and Google, now known as Alphabet Inc. (GOOGL - Analyst Report). Microsoft Corporation’s (MSFT - Analyst Report) solid gains also propelled the index into positive territory, while Apple Inc. (AAPL - Analyst Report) failed to make an impact despite posting commendable quarterly performances.

Meanwhile, U.S. stocks began 2016 on a dismal note with all these stocks taking a beating. However, their inherent fundamental strength will help them to tide over the adversities in the long run.

How the Nasdaq Fared Last Year?

In 2015, the S&P 500 and the Dow declined 0.7% and 2.3%, respectively. Many of the forces behind this dismal performance include low commodity prices decimating energy companies and adversely affecting junk bonds, a stronger dollar having a negative impact on U.S. multinationals' overseas sales figures, slow growth in China and rate hike frenzy. In addition to this was the geo-political turmoil in the Middle East.

However, the Nasdaq bucked the declining trend and gained 5.9% for the year. Though short of 2014’s gain of 14.1%, the index’s outperformance last year stemmed primarily from upbeat gains from FANG stocks. Gains of a few bellwether stocks including Microsoft also boosted the index. Limited exposure to the struggling energy sector was also a tailwind.

But the Nasdaq was not without its share of setbacks in 2015. Price gouging concerns weighed on biotech stocks, which eventually had a negative impact on the index. Nevertheless, the innate strength of the biotech sector won out in the end and the index closed above the key psychological level of 5,000 in 2015.

FANGs Dominated Nasdaq in 2015

Amazon and Netflix helped the consumer discretionary sector to be the top performer in 2015, while the information technology sector was boosted by components such as Facebook and Alphabet. These four stars of the stock market don’t pay dividends.

But who wants dividends, when stocks like Amazon soared 118% or a Netflix catapulted 134% while Facebook went up 34% and Alphabet gained 47% last year. Let us now look at their quarterly performance in 2015:

Facebook: Over the course of 2015, Facebook had outperformed the market as more users were compelled to share and connect with one another. It is one of the most visited sites on the Internet and is cutting into Alphabet’s market share in the grand scheme of things. The social media giant consistently traded above its 50-day moving average since early October.

Amazon: The e-commerce giant had an excellent holiday shopping season. Amazon added at least 3 million subscribers to its Prime service. During this phase, Amazon shipped more than 200 million items for free to its Prime subscribers. Amazon traded steadily above its 50-day moving average since early October.

Netflix: This company had a meteoric rise over the course of 2015 becoming the best-performing stock on the S&P 500. The company’s impressive subscriber growth was cited to be the key reason behind its success. The streaming video company also has a support above its 50-day moving average.

Alphabet: The company’s search engine had outperformed any opponent that came in its way. According to the comScore report, “Google sites” captured 63.9% of the search market in the U.S. in Nov 2015, while its rival “Microsoft sites” and “Yahoo sites” were able to capture 20.9% and 12.5%, respectively. Moreover, one of its video streaming sites, YouTube, helped the search-engine giant to trade at record highs in 2015.

Microsoft Gains, Apple Turns in First Negative Year Since 2008

2015 has been a huge year for Microsoft. The company gained 15.9% for the year. The current management helped Microsoft to make a confident move into cloud computing. The smart thing they did was to pursue a blend of on premise, private cloud and public cloud services called “Intelligent Cloud”. Microsoft’s net cash and short-term investment balance stood at $60.8 billion as of Sep 30, 2015, which provides the flexibility to pursue any growth strategy.

Unlike Microsoft, Apple – another supernova stock listed on the Nasdaq – failed to attract investors. Apple snapped a six-year winning streak to end the year down 4.6%, at $105.26. The tech-behemoth had a roller-coaster ride in 2015. The stock had hit an all-time intraday high of $134.54 on Apr 28. Since then the stock fell 21.76% on concerns about a possible saturation in the iPhone market and a weak Chinese economy. This decline in Apple’s share has wiped out around $57 billion of its market cap.

Apple’s dismal performance came in despite the company beating the Zacks Consensus Estimate in the trailing four quarters by an average of 7.8%. Moreover, in fiscal 2015, the company’s top line grew 28%.

How to Play These Top Performers in 2016?

When the market’s closing bell rang for the final time in 2015, some stocks held promise for the new year. FANGs were definitely an exception, registering an average return of 83% in 2015. However, the recent carnage that marked one of the worst starts to a new year left even these stock bleeding.

So far in 2016, this popular group of stocks have fallen more than 9% each on average through Wednesday. Moreover, these stocks are trading at huge multiples to the Nasdaq. This makes them expensive stocks. As a result, they are more vulnerable to market panics.

However, the short-term trend of the U.S. markets has become quite unclear. Persistent rout in oil prices and concerns about weak Chinese economy have weighed on investor sentiment since the beginning of 2016. However, stocks gained on Thursday as oil prices rebounded from 12-year lows. Hence, it will be wise to stick to the fundamentals.

Facebook is expected to benefit from photo-sharing service Instagram and will also get a boost once Oculus launches the Rift early 2016. Amazon’s platform strategy and AWS will spur future growth, while Netflix will continue to enjoy subscriber growth. Alphabet’s search market share is a big positive, which, along with its focus on strategic acquisitions should generate strong cash flows. Separately, Microsoft being the leader in the cloud computing market will continue to perform well.

Hence, investors should have faith in these stocks despite the initial hiccup in the stock market this year since all these stocks possess a sustainable and growing business model. Moreover, stocks such as Amazon and Alphabet boast a Zacks Rank #2 (Buy). Other stocks including Facebook, Netflix and Microsoft also possess a favorable Zacks Rank #3 (Hold). Additionally, Facebook, Amazon, Netflix, Alphabet and Microsoft have EPS growth rates of 40.9%, 172.2%, 4.1%, 20.8% and 10.9%, respectively.