The surprise FANG income stock

Michael Shulman

Every investor knows the FANG stocks: Facebook (NASDAQ: FB), Amazon (NASDAQ: AMZN), Netflix (NASDAQ: NFLX) and the stock formerly known as Google, Alphabet (NASDAQ: GOOGL).

The FANG stocks are four of the most popular and widely traded tech stocks in recent history that dominate their respective niches — social media, online commerce, streaming entertainment and internet search.

But I’m here to tell you something you might not know… there’s a fifth FANG stock.

This silent FANG dominates its market, owning the most widely recognized brands, and is now very attractively priced.

I’m talking about Expedia (NASDAQ: EXPE), which runs online booking sites where travelers can reserve flights, hotel rooms, houses, apartments, rental cars, cruises and almost any other travel-related services.

The U.S. travel sector is benefiting from increased consumer confidence and a shift in household spending, with Americans now spending much more on services than goods.

In particular, this trend is being spurred by the country’s 150 million baby boomers and millennials, who prefer to spend money on experiences — travel, food, personal services — rather than “stuff.”

Expedia is one of the biggest beneficiaries of this trend.

The company is growing both organically and through aggressive acquisition. In addition to its namesake Expedia.com, its sites now include Hotels.com, Orbitz, Travelocity, CarRentals.com, hotwire, HomeAway and others, with a total 600 million-plus monthly visits across all its sites.

Expedia is a market dominator among online travel agents with $72 billion in gross booking in 2016.

Yet, it controls just 20% of the online travel market in the United States and Canada, and only 13% of the total travel market in North America. In other areas of the globe, it accounts for even less. This means the company has as much headroom as any of the FANGs — perhaps more.

And the company is growing at an impressive clip.

In the most recently reported quarter, total gross bookings increased 12% year over year to $22.8 billion. This included a 16% increase in international gross bookings, even taking into account the negative foreign exchange impact.

Overall, revenue jumped 17.7% for the quarter. And analysts are projecting revenue growth of 16.4% this year and 13.9% next year. Full-year earnings are expected to come in 13.1% higher and then jump more than 30% in 2018.

As you can see in the table below, Expedia’s earnings are expected to grow at roughly six times the rate expected for the average company in the S&P 500, and its growth rates are commensurate with its FANG cousins.

Yet, EXPE is dirt cheap.

The stock sports a significantly lower forward P/E than the rest of the bunch and just slightly higher than the broader market.

I actually think Wall Street is underestimating Expedia’s growth potential, which could mean a run up in shares if the company exceeds estimates. And its relatively low P/E compared to the other FANG stocks should help cushion the blow if bad news does hit the stock.

Expedia’s market dominance, impressive growth and modest valuation are why this fifth FANG stock deserves a place in investors’ long-term portfolios. But EXPE is also an ideal stock for income traders, and one I trade frequently.

In my most recent recommendation, we generated $133 in income for every $150 strike put contract we sold on the stock. The trade was only open a week, earning us 0.9%.

If you could make a trade like that every week, you’d earn yourself 46% annualized income.

If you prefer buying shares and selling calls against them to bring in income, you can generate almost 1% a week by selling at-the-money calls on Expedia. Do that 52 times a year and, well, you can do the math.


About The Author

Michael Shulman is a 30 Year Veteran of the financial markets – as a trader, a financial analyst, a financial writer and most recently as an educator.

Mr. Shulman made his first option trade in 1985 – COMPAQ Computer calls – a position that expired worthless. His second trade broke even; the third brought him a year’s salary, a near twenty to one return on his investment. He has never looked back. He entered the financial publishing business formally in 2001 as director of research for ChangeWave Research’s institutional research business and as the writer and editor of Hedge Fund Investing.

He has published two books – Sell Short and Made in America – both of which can be found on Amazon.com, and he is a frequent contributor to reputable financial sites like Seeking Alpha, MSN, MainStreetInvestor, and Traders Reserve.

Most importantly, since 2010, he has dedicated himself to teaching income investors how to get more income from their portfolios using simple yet safe options selling strategies which produce income every week. This approach was developed from the ground up in Mr. Shulman’s own accounts, his goal to develop a strategy that cannot be replicated by institutional investors of any size and therefore independent of fads and trends that change too often to provide a consistent approach for individual traders.

His trade recommendations in his Options Income Blueprint, Perpetual Income Portfolio Club and Income Masters services maintain a 98% success ratio, meaning his trades produce the expected income 98% of the time. No one’s perfect.