by jessefelder

Virtually 5 years in the past I wrote a weblog submit titled, “BANG: Why The Gold Miners May Quickly Make FANG Look Tame.” A reader not too long ago reached out to ask if I might submit 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 stunned they haven’t performed higher however extra on that in a bit. As for the FANG shares, it’s fairly exceptional to see them generate primarily 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 combination free money stream has fallen greater than 80% from its peak a few years in the past again to a stage not seen in virtually a decade. This compares to only a 35% decline of their combination market cap. Clearly, buyers piling into these shares right this moment are betting the businesses could make the transition from hyper-growth to hyper-efficiency and quickly reverse this plunge in profitability.

The state of affairs for the BANG shares, nonetheless broadly ignored by buyers, may be very completely different. Free money stream has soared greater than four-fold since I first wrote about them. The rise in combination 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 dearer relative to their respective developments in free money stream.

It’s most likely essential to notice, although, that the foremost driver of each free money stream developments and valuations for all of those shares going ahead would be the path of inflation. If the return of inflation proves to be secular quite than cyclical, BANG shares’ latest outperformance is probably going solely the start of a a lot greater pattern. Traders, nevertheless, nonetheless seem like betting on the concept inflation is merely a cyclical phenomenon. Time will inform.