Despite a marvelous run in 2017, some of the largest capitalization technology and internet stocks have underperformed the market recently as we get ready finish up the year. Many are citing sector rotation, while others say it’s just good old-fashioned profit taking. One thing is for sure: the biggest and most powerful internet companies are poised for years of revenue and earnings growth, and it make sense for aggressive accounts to maintain positions in some.
In a new SunTrust Robinson Humphrey research report, outstanding internet and digital media analyst Youssef Squali notes that while valuations have gone up, the long-term benefits of owning the top companies in the sector still hold merit. The report said this:
The current macro environment and year-to-date returns of 26.5% versus the S&P 500 at +17.4% keep the group at risk of reverting closer to the mean short-term; longer-term, we believe strong fundamentals and attractive growth-adjusted valuations keep us positive on the group.
SunTrust has five favorite stocks in the sector and all are rated Buy.
This red-hot momentum stock is being bought this quarter by Dan Loeb, who runs Third Point, a New York–based hedge fund. Alibaba Group Holding Ltd. (NYSE: BABA) runs the largest retail marketplaces (Taobao, TMall) and leading B2B sites (Alibaba.com, 1688.com) in China and Lazada in Southeast Asia. It collects revenues mainly from commissions, marketing services, subscription fees, cloud computing and software, as well as other value-added services.
The company has gone beyond e-commerce and developed into a sophisticated new type of conglomerate in the cyber-era with e-commerce as the base for the rest of the four businesses: logistics, finance, data-computing and cross-border infrastructure. Top analysts expect a whopping 24% compounded annual growth rate between now and 2018 for e-commerce in China.
The company recently reported huge quarterly numbers, and the driving force for some of the outperformance included social features, customized mobile app for users, cross-platform user tracking and ad targeting for merchants. In fact, growth returned to the levels the company was at when it went public.
The SunTrust price target for the shares is $210, and the Wall Street consensus target is $208.53. The shares closed trading Friday at $177.62.
The search giant continues to expand and is even working on a driverless car now. Alphabet Inc. (NASDAQ: GOOGL) is a global technology company focused around key areas, such as search, advertising, operating systems and platforms, enterprise and hardware products. It generates revenue primarily by delivering online advertising and by selling apps and contents on Google Play, as well as hardware products. The company provides its products and services in more than 100 languages and in 190 countries, regions and territories.
Alphabet offers performance and brand advertising services. It operates through Google and Other Bets segments. The Google segment includes principal internet products, such as Search, Ads, Commerce, Maps, YouTube, Apps, Cloud, Android, Chrome and Google Play, as well as technical infrastructure and newer efforts, such as virtual reality.
The search leader also pounded earnings estimates when it delivered upside to revenue, margins and GAAP earnings per share. Website ex-currency growth acceleration was a key positive. While higher distribution traffic acquisition costs rate increase could temper enthusiasm, top analysts feel the profit growth trajectory intact.
The analysts see the company benefiting from AI through search, cloud, home assistants, autonomous vehicles, photos, news feed and numerous other applications.
SunTrust has a $1,180 price target. That compares with the consensus target of $1178.57. The shares closed on Friday at $1,049.38.