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Martin Tillier

Martin Tillier

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Why You Should Buy FANG, Not FANG

Eagle ford rig

Whatever you think of CNBC pundit Jim Cramer, and opinions do vary, he has shown a knack in the past for coming up with phrases and acronyms that pass into the vernacular. The most recent, and probably most widely adopted of those was his lumping together of four big tech stocks, Facebook (FB), Amazon (AMZN), Netflix (NFLX) and Google (GOOG: GOOGL) and referring to them as the FANG stocks. At the moment, as the result of a combination of scandals, privacy issues and opposition to their market dominance, all are facing possible regulatory headwinds. Combine that with an average P/E for the four of around 80 and investors may be better off looking at another FANG.

Diamondback Energy (FANG) are a Midland, Texas based oil and gas exploration and production (E&P) company with a focus on the Permian Basin. That geographical limitation has proven to be a positive over the last few years as the costs of producing from unconventional wells in the region and getting product to market have fallen, enabling them to remain profitable throughout some quite serious volatility in commodity prices.

Despite that though, the stock has spent all this year stuck in a range of around $95-115. It is near the top of that range now and positioning for a breakout looks like a reasonable play.

A large part of the reason is contained in one basic metric. FANG has a forward P/E of just under 10 which, while far better than the S&P 500 average, is not that unusual for an…





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