Think the FAANG stocks are now toxic? Think again

What now for the defanged FAANG stocks? Should this clique of five highly charged technology stocks that had been recently pummeled get consigned to the bin of untouchable "toxic" stocks?

In spite of that two-day battering last Friday and Monday, the FAANGs are far from turning into market pariahs in this second-longest bull market since 1928. In fact, all the five FAANG components -- Facebook, Amazon, Apple, Netflix and Google (a unit of Alphabet) -- rebounded on Tuesday and closed on the upside by the market's close.

Facebook (FB) jumped $2.24 (1.5 percent), to $150.68 a share. Amazon (AMZN) climbed $15.88 (1.7 percent), to $980.79. Apple (AAPL) advanced $1.17 (0.8 percent), to $146.59. Netflix (NFLX) rose $1.28 (0.85 percent), to $152.72. And Google (GOOGL) added $8.69 (0.9 percent), to $970.50. The FAANGs apparently are continuing to lead the "charge of the bullish brigade," noted veteran market observer Ed Yardeni, president of Yardeni Research, in his daily Morning Briefing on Tuesday.

In the past three years, the FAANGs have been blockbuster winners and grabbed a huge part of the S&P 500 stock index's market capitalization. 

"The biggest elephants in the stock market are the five FAANG stocks which (prior to their two-day pullback) had accounted for 11.9 percent of the S&P 500's market capitalization, up from 5.8 percent on April 26, 2013," Yardeni pointed out. Collectively, they accounted for $1.6 trillion of the $6.9 trillion increase in the S&P 500.

Before their recent drop, the FAANGs' collective forward price-earnings ratio was 27.1, but Yardeni pointed out that if Apple were excluded, the p-e jumps to an astonishing 42.8, compared with the S&P 500's forward p-e of 17.7, which drops to 16.9 without the FAANGs.

The high-flying tech stocks now appear even more attractive after the sector's pullback on June 9 and 12, which was mainly due to profit-taking as many investors suddenly developed acrophobia over the FAANGs' long, robust advance. 

As gleaned from their snapback-performance on Tuesday, investors had a fresh chance to buy these shares at a huge discount. But that rare opportunity may not last long as the tech bulls on Wall Street are also jumping in to buy and take advantage of that discount window.

And most tech analysts are likely to turn more bullish, as well, on the FAANGs and other tech stocks given the lower reentry price. 

"The tech sector is trading much closer to realistic expectations for fundamentals than during the bubble of the 1990s," noted Yardeni. The S&P 500 information-technology index nearly exceeded its March 27, 2000, high for the first time last week (on June 8), he said. And the tech sector's forward earnings rose to a record high at the start of June, exceeding the 2000 peak by 168.6 percent.

Equally important, the tech stocks had "the highest forward profit margins among the S&P 500 sectors," Yardeni noted. "It has been at a record high around 20 percent since late last year, up from a cyclical low of around 12 percent at the start of 2009," he said. 

Here's a brief rundown on how the Street generally views the FAANGs (expressed before the group's two-day pullback):

Facebook is rated as a "buy" at CFRA Research, where senior tech analyst Scott Kessler has raised his price target for the stock by $10 a share, to $175. "We continue to see a strong fundamental growth story, noting Facebook's Instagram, Messenger and  WhatsUp," he said. "We believe the shift to GAAP reporting improves the company's earnings quality," Kessler added.

And at MKM Partners, analyst Robert Sanderson had increased his price target for Facebook to $180 a share from $150, based in part on the company's very strong earnings in the last quarter. Despite the stock's 30 percent advance this year (before the recent dip), it remains inexpensive, according to Sanderson. Facebook is currently trading at $150 a share after the 1.5 percent rise on Tuesday.

Amazon shares finally leaped above the long-awaited $1,000 a share mark when they closed on June 2 at $1,006.27. Even though the stock didn't stay at that lofty perch for long -- pulling back to $986 a few days later -- the bulls are convinced it has yet to reach its peak.

Loop Capital analysts Blake Harper and Anthony Chukumbra rate Amazon as a "buy," with a price target of $1,100 a share. CFRA analyst Tuna Amobi also recommends Amazon as a "buy" and raised his price target by $75 a share, to $1,050 before the sell-off on Friday and Monday.

Apple held its annual developers conference on June 5, at which it introduced its HomePod, a new Siri-based home speaker system that will directly compete with Amazon's popular Echo. Apple also introduced a refresh to its MacBook and a new 10.5-inch iPad Pro. Analyst Angelo Zino of CFRA expects the HomePod to sell well given its "superior sound quality" despite being priced much higher (at $349) than the competition.

Apple shares are currently trading at $146, up from Monday's $145. Zino, who rates the stock a "strong buy," sees it climbing to $165 in 12 months.

Netflix recently gained a pivotal streaming licensing agreement from China's iQiyi, a video portal company and a unit of Baidu, China's major internet company. iQiyi has more than 500 million users. With such a partner, Netflix could certainly establish a toehold in a "notoriously difficult but relatively attractive market for foreign media companies," said Amobi of CFRS. The stock is currently trading just under $153. Amobi's 12-month price target is $160.                        

Google's renewed focus on artificial intelligence, virtual reality and augmented reality ambitions bode well for the company's future expansion, according to Gene Munster, tech analyst at Loup Ventures. And CFRA tech analyst Scott Kessler "still sees healthy sustainable growth, driven by mobile and YouTube." He also noted that more emerging opportunities related to cloud computing and self-driving cars should further enhance Google's advance. He rates the stock as a "buy."

Moreover, "we see gains related to artificial intelligence and machine learning," said Kessler. Currently trading at $970 a share, Kessler has a 12-month price target of $1,070.

In sum, the two-day drubbing that hit the FAANGs was a big test for this group's resilience after its long and robust run-up. So for investors, the group's surprise two-day pullback was a good opportunity to resort to Wall Street's bias toward, "buy the dips."