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October was a rough month for investors. The giant technology stocks that led the way higher all last year took it on the chin and dragged the rest of the market down with them.
You know who they are. The "FANG stocks, (or FAANG) – Facebook Inc. (NASDAQ: FB), Amazon.com Inc. (NASDAQ: AMZN), Apple Inc. (NASDAQ: AAPL), Netflix Inc. (NASDAQ: NFLX), and Google parent Alphabet Inc. (NASDAQ: GOOGL). Toss in Microsoft Corp. (NASDAQ: MSFT) and Netflix Inc. (NASDAQ: NFLX), if you like. The point is that the hottest of the hot dropped in a big way.
This naturally leads to the question about whether to buy them now. After all, they still dominate their markets and make tons of money for their shareholders.
However, the stock market does not always play by such nice rules. The prices of these FANG stocks were driven higher by their great fundamentals but also by the extreme hope and greed of investors. That latter part is still being worked out.
So, then what? Where are the real bargains out there? Where can we take advantage of the global sell-off to buy quality companies at bargain prices?
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As Money Morning Chief Investment Strategist Keith FitzGerald puts it, you want to find companies with the following characteristics:
- Solid growth that is at best only minimally impacted by trade war tariffs;
- Generating a ton of cash;
- Down significantly from their all-time highs.
Looks simple, right? But if not the FAANGs, then what?
The answer may surprise you. The world's second largest economy, China, saw its benchmark Shanghai Composite index – the Chinese equivalent of the S&P 500 – fall 24.8% from its peak on Jan. 29 of this year to its current levels. That's an outright bear market, and it is no surprise that its own giant technology stocks led the way lower.
As with our tech stocks, their Chinese counterparts are dominant in their markets. And considering just how "on sale" they are now, they are worth more than just a look. The potential for trade wars and other business-unfriendly goings on makes them interesting from a contrarian point of view, even before we appreciate their earnings power.
Consider these the next FANG stocks…