Bill Nygren: Why Value Investors Should Consider Owning FAANG Stocks

In his recent interview on the Virtual Value Investing Q&A Speaker Series Event at Brown University, Bill Nygren discusses why value investors should consider owning FAANG stocks. Here’s an excerpt from the interview:

Nygren: I mean the way we’ve thought about Alphabet you know it misses a lot of value investor screens because it looks like it’s selling at something 30 to 40 times earnings. But when you subtract out the non-earning assets starting with several hundred dollars a share of cash, and then YouTube that they aren’t fully monetizing, certainly their venture camp like investments with Waymo and Alphabet, or maybe it’s Google Web Services

I think it’s GWS, if you subtract off of Alphabet’s current market price an estimated value for all those non-earning assets and then add back the income statement losses to what they’re earning in search we believe that you get left… that you’re paying less than a market multiple for search, and given the tailwind search has and the durability of the franchise. We think that’s an incredible bargain. That’s why it’s our largest position.

We also own Facebook, kind of similar story there where the base has gotten so large I think it would be hard for anyone to replicate it, and they’re making the generational transition by owning both Facebook and Instagram.

I think one of the issues you always get with newer businesses is will kids go on to the same platform that their parents are on? Will they shop in the same stores? Do they want the same brands? And I think with Instagram Facebook has kind of solved that problem.

But it’s the same story on a misleading PE that GAAP accounting doesn’t give them much credit for the cash they own, for WhatsApp, for all of their investments in augmented reality, artificial reality, and if you subtract all that out Facebook isn’t selling at a low 20s PE multiple.

But the core Facebook and Instagram businesses are selling at a teens multiple which we think is much too big a discount to the S&P multiple of whatever it is like 22 or so right now. So that’s why Facebook is our second largest holding out of those names.

You can watch the entire interview here: