Nearly 5 years in the past I wrote a weblog put up titled, “BANG: Why The Gold Miners Could Soon Make FANG Look Tame.” A reader lately reached out to ask if I might put up an replace so right here it’s. The chart under plots two customized indexes: FANG (META, AMZN, NFLX, GOOG) versus BANG (GOLD, AEM, NEM). Clearly, there was some backwards and forwards between the 2 with the BANG shares taking the lead and holding it over the previous yr or so. Frankly, I’m shocked they haven’t accomplished higher however extra on that in a bit. As for the FANG shares, it’s fairly exceptional to see them generate basically zero return as a bunch since mid-2018, even after their sturdy runup to start out the yr.
What has pushed the poor efficiency in these perennial inventory market favorites previous to this yr is the truth that their mixture free money circulate has fallen greater than 80% from its peak a few years in the past again to a degree not seen in virtually a decade. This compares to only a 35% decline of their mixture market cap. Clearly, traders piling into these shares in the present day are betting the businesses could make the transition from hyper-growth to hyper-efficiency and quickly reverse this plunge in profitability.
The scenario for the BANG shares, nonetheless broadly ignored by traders, may be very totally different. Free money circulate has soared greater than four-fold since I first wrote about them. The rise in mixture market cap has been far much less. The results of all of that is that the BANG shares have outperformed the FANG shares even whereas they’ve gotten considerably cheaper and the latter have gotten considerably costlier relative to their respective tendencies in free money circulate.
It’s in all probability necessary to notice, although, that the most important driver of each free money circulate tendencies and valuations for all of those shares going ahead would be the route of inflation. If the return of inflation proves to be secular reasonably than cyclical, BANG shares’ latest outperformance is probably going solely the start of a a lot greater development. Buyers, nonetheless, nonetheless look like betting on the concept that inflation is merely a cyclical phenomenon. Time will inform.