With the third quarter winding down, and the Labor Day holiday behind us, many on Wall Street are starting to focus on the final quarter and are shuffling their portfolios and top picks for the stretch run of 2017. One thing is for sure, internet stocks have remained hot, and as a group have outperformed the broad market in a big way: up 43% year to date on a market cap–weighted basis and 32% on a straight average basis, compared to a 10% or so gain for the S&P 500.
In a new research report, the internet team at JPMorgan stays bullish on the group, and they noted this:
The Internet group continues to benefit from what we believe are accelerating trends in digital advertising, eCommerce, and cord cutting, while scale benefits and network effects also remain key drivers for the large-caps. Coming out of second quarter earnings, we also believe investment spending continues to ramp for many names as they seek to drive future growth.
This huge social media leader has continued to post gigantic numbers, and it is a top large cap pick in internet media for 2017 at JPMorgan. Facebook Inc. (NASDAQ: FB) operates as a mobile application and website that enables people to connect, share, discover and communicate each other on mobile devices and personal computers worldwide.
Its solutions also include Instagram, a mobile application that enables people to take photos or videos, customize them with filter effects, and share them with friends and followers in a photo feed or send them directly to friends; Messenger, a messaging application for mobile and web on various platforms and devices, which enable people to reach others instantly, as well as enable businesses to engage with customers; and WhatsApp Messenger, a mobile messaging application.
Top analysts feel that Facebook’s long-term forecasts are more easily attainable, especially as the company continues to grow and employ new platforms for online advertising. JPMorgan team noted numerous positives in its report to watch for going forward:
- Engagement and momentum in video, including the company’s video tab. Watch and shows adoption, live Instagram stories and news feeds.
- Video investments that include revenues sharing and seeding content.
- Possible revenue deceleration as advertising load increases become a less significant factor in the second half of the year.
- Accelerating spending in the second half driven by increased headcount and video content.
- Messenger and WhatsApp monetization path.
Other top analysts that we cover on Wall Street agree and feel the company is poised to outperform both Alphabet and Amazon.com over the next year, and perhaps longer.
JPMorgan has a huge $210 price target on the stock. The Wall Street consensus price target is $192.62, and the stock closed trading on Tuesday at $170.72 a share.
Netflix
This Wall Street darling and FANG constituent could offer solid upside. Netflix Inc. (NASDAQ: NFLX) is the world’s leading internet television network, with more than 70 million members in over 190 countries enjoying more than 125 million hours of TV shows and movies per day, including original series, documentaries and feature films. Members can watch as much as they want, anytime, anywhere, on nearly any internet-connected screen. Members can play, pause and resume watching, all without commercials or commitments.
24/7 Wall St.Netflix is available on virtually any device with an internet connection, including personal computers, tablets, smartphones, smart TVs and game consoles, and it automatically provides the best possible streaming quality based on available bandwidth. Many titles, including Netflix original series and films, are available in high-definition with Dolby Digital Plus 5.1 surround sound and some in Ultra HD 4K. Advanced recommendation technologies with up to five user profiles help members discover entertainment they’ll love.
Consumers continue to abandon cable and satellite programming, and millennials are helping to lead the charge in the cord-cutting. JPMorgan feels the company likely will add more members this year than it did in 2016. The firm also notes the company’s strong original content line up, which includes “Narcos,” “Stranger Things,” “The Crown” and many others as a huge positive driving subscriber growth.
The JPMorgan price target on Netflix is $210, and the posted consensus target is $185.29. The shares closed Tuesday at $174.52 apiece.
Yelp
This is the third top internet play from the JPMorgan team. Yelp Inc. (NASDAQ: YELP) provides free and paid business listing services to businesses of various sizes, as well as enabling businesses to deliver targeted search advertising to large local audiences through its website and mobile app.
24/7 Wall St.Yelp also provides other services, including Yelp platform, which allows consumers to transact directly on Yelp; Yelp deals that allow local business owners to create promotional discounted deals for their products and services; and gift certificates products for local business owners to sell full-price gift certificates directly to customers. The Yelp platform also enables consumers to complete food delivery transactions, book spa and salon appointments, order flowers, make winery reservations and more.
The company posted very solid quarterly results, and it announced it is selling Eat24 to GrubHub while still staying a partner. In addition, Yelp announced a $200 million share buyback. The analysts are very positive on the company’s Request a Quote segment, which some on Wall Street feel could drive as much as $50 million in revenue in 2018. The unit has grown from a million inquiries in 2016 to almost 2.5 million in the first quarter of 2017.
The analysts are also bullish on the prospect for share buybacks, for which $200 million already has been authorized, and sales force growth, which is expected to be 15% or more this year, with a new sales office opening in 2018.
The $46 JPMorgan price target compares to a consensus target of $39.82. Yelp stock closed trading on Tuesday at $43.04.
These are three top picks for the rest of 2017, and stocks that should remain in portfolios for years given their overall prospects. It is important to remember that the market is expensive and hasn’t had a 5% or larger correction in well over a year. It may make sense to scale buy shares over the next month or so, and see if we get a pullback.
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