Technology

RBC Has 5 Top Internet Stocks to Buy for the Rest of 2015

One amazing thing about the Internet and the top companies involved is the growth potential always seems robust and the top players seem to be continually strengthening their hands. A new report from RBC details the firm’s top Internet picks for what should prove to be an interesting finish to a rather frustrating trading year.

With many of the top Internet and Internet-related companies trading at the high end of valuation ranges, the RBC analysts note that caution is needed. From a secular change in how media is viewed to the poaching of employees, there is a changing landscape, and it appears likely the strong will only get stronger.

Here are the top five RBC large-cap Internet stocks to buy for the rest of 2015. They are presented in the order RBC ranks them.

Amazon

This absolute leader in online retail and a dominate player in cloud storage business just crushed earnings last week. Amazon.com Inc. (NASDAQ: AMZN) serves consumers through retail websites that primarily include merchandise and content purchased for resale from vendors and those offered by third-party sellers. In addition, the company serves developers and enterprises through Amazon Web Services (AWS), which provides compute, storage, database, analytics, applications and deployment services that enable virtually various businesses.

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Despite currency headwinds of $1.4 billion, the company still had worldwide unit growth of 22% in the quarter. Plus, AWS revenues increased an astounding 81% to $1.8 billion, which was $400 million more than the analysts’ estimates. RBC called it a “hat-trick quarter,” with revenue, growth acceleration and margin expansion across all three segments.

The RBC price target for the stock is $650, the same as the Thomson/First Call consensus target. The stock closed Friday at $531.52.

LinkedIn

This stock has been hit hard this year, possibly offering aggressive tech investors and outstanding entry point. It is also one of the best companies to work for. LinkedIn Corp. (NASDAQ: LNKD) continues to dominate the interconnecting of business professionals, with over 300 million members worldwide. But uneven earnings and some corporate missteps have turned the stock into a volatility victim. An improving economy and demand for highly skilled workers have provided the impetus for earnings surprises.

Wall Street analysts who met with the company recently indicated that the new Sales Navigator product launched last year is doing well. LinkedIn has ramped sales, selling the product to well over 200 at this point, with field sales having an increasingly rising impact, as field sales accounted for almost 50% of bookings in the second quarter and almost 50% of revenue. Last year most of SN revenue and bookings were generated on a self-serve basis.

The RBC team concedes the company is the most dislocated of the large cap net stocks, but numerous positives and one of the strongest growth profiles in the sector, driven in part by very significant EBITDA margin expansion, make it a solid add for the rest of this year and 2016. Most analysts are looking for further updates from the company at the Sales Connect conference in Las Vegas in October.

The RBC price target is $275, and the consensus target is $255.54. The stock closed Friday at $189.59.

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Priceline

The pre-eminent force in online travel, Priceline Group Inc. (NASDAQ: PCLN) operates Booking.com, which provides online accommodation reservation services. Priceline.com offers hotel, rental car and airline ticket reservations services, as well as vacation packages and cruises through its Name Your Own Price and Express Deals travel services. Agoda.com is an online accommodation reservation service for consumers in the Asia-Pacific region, and RentalCars.com that offers car rental reservation services.

Trading at 18.6 times fiscal year 2016 earnings, the travel giant is seen by many Wall Street analysts as an “open-ended” growth story. RBC continues to see comparisons easing for international bookings in every quarter this year, and they believe margins will improve in the second half of the year.

The RBC price target of $1,600 is higher than the consensus target of $1,475.22. Shares closed Friday at $1,283.80.

Expedia

This online travel leader also is poised for a potential big second half. Expedia Inc. (NASDAQ: EXPE) has absolutely exploded pricewise over the past year, and more gains are expected, especially after it has picked up the pace in television advertising. The company provides travel products and services to leisure and corporate travelers, offline retail travel agents and travel service providers through a portfolio of brands, including Expedia.com, Hotels.com, Hotwire.com, Expedia Affiliate Network, Classic Vacations, Expedia Local Expert, Expedia CruiseShipCenters and Venere.com.

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The RBC analysts see it as a story of improving execution, and they also think the company is starting to finally match Priceline’s growth metrics. They also note that the closing of the Orbitz deal is an upcoming catalyst and they see positive synergies from the deal. Expedia has raised the dividend and is buying back stock, both shareholder-friendly actions.

Investors are paid a 0.6% dividend. RBC has a $140 target price, while the consensus target is $122.46. Expedia closed Friday at $121.65.

Google

The technology giant blew out second-quarter numbers. Google Inc. (NASDAQ: GOOGL) recently introduced Android Pay, a revamped photos and a lightweight Android derivative operating system they call Brillo, which is designed to power the Internet of Things. The company also recently announced a new mobile version for the Android OS, which is expected to be released this fall.

Google remains the undisputed leader in Internet search. When you add in a diverse portfolio that includes everything from the Android platform to YouTube, the Google Wallet for automatic pay and the Google Flights tool, continued growth is not out of the question.

Many on Wall Street have lauded the fine first-year job of the company’s new chief financial officer, Ruth Porat, who came to the firm last year after 20 years at Morgan Stanley. In the earnings call for second quarter, she signaled discipline in expense management and also discussed capital allocation, which could leave the possibility of a dividend of buyback open, either now or in the future. Plus, a huge new restructuring and reorganization of the Internet giant was met with approval from Wall Street.

The RBC price target is $750. The consensus target is $757.33. The stock closed on Friday at $689.37.

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RBC is sticking with large cap leaders that should continue to be dominant players, with very little direct competition. The stocks are all high in share price, and that makes it hard for investors to grab a sizable position. But even small positions in these Internet monsters would be a good portfolio addition.

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