RBC's Smaller Internet Stocks to Buy With Big Upside Potential

When most investors think of Internet stocks, the first ones that usually come to mind are the industry giants like Google, Yahoo and Facebook. The reality is there is a world of top Internet stocks that, while they lack mega-cap status, are extremely successful at making money and could always end up as a target for the big boys.

A new research report from the Internet team at RBC indicates that current expectations for the smaller Internet stocks in their coverage universe are biased toward the positive side going into the earnings for the quarter. The group has outperformed the S&P 500, rising anywhere from 8% to 10% versus the index gain of 4%.

We screened the RBC report for the three top picks, and for additional Internet stocks with the least amount of risk from second quarter earnings expectations.

Zulily Inc. (NASDAQ: ZU) is one of the top three picks from the RBC team. They believe that the recent stock underperformance creates a very attractive entry point for investors and continued expansion beyond core children’s apparel segment implies proven value to vendor partners. Their survey results highlight the company’s leadership position as a flash-sales website with high customer satisfaction with price, customer selection and discovery viewed as company’s best features.

The RBC price target for Zulily stock, which is rated Outperform, is $50. The Thomson/First Call consensus price target is at $48.86. The stock closed Tuesday at $37.42 a share.

SEE ALSO: Credit Suisse’s Top Mid-Cap Stocks to Buy for Rest of 2014

Shutterstock Inc. (NYSE: SSTK) is one of the stocks RBC believes holds less risk in front of earnings and is a top pick. The company is the undisputed leader for online commercial digital imagery. It is the “you name it, we have it” one-stop shop for any commercial or personal image or video need. The company offers its products for users to enhance their visual communications, such as websites, digital and print marketing materials, corporate communications, books, publications and video content.

The RBC team is impressed with the company’s ability to take advantage of what they see is a secular movement of imagery and photography online. With the additions of added salesforce, new products, expansion and acquisitions all designed to help growth, and partnerships with Facebook and, the stock could be poised for big growth. The stock is rated Outperform, and the RBC price objective is a big $90. The consensus target is $89.20. Shares closed Tuesday at $76.11.

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