Jefferies Out With Top Internet Stock Picks for 2019
It’s the beginning of a new year once again, the time when all the top firms that we cover here at 24/7 Wall St. are presenting their stock and sector picks and prognostications for 2019. This not only gives investors some help with portfolio reshuffling, but it also gives them a look at what the overall macro thoughts for this year are at the big brokerages and banks.
The relentless selling in the markets that started in early October shook the faith of many investors, but it is important to remember that we have enjoyed almost a 10-year bull market run, with the S&P 500 running to 2,940 from an intraday low in March of 2009 of 666. While the market has rallied over 8% from the lows, the massive backup should still give investors a chance with some dry powder to reset and buy some great companies.
In a new research report, Jefferies is out with its top internet stock picks for 2019, many of which were absolutely battered during the fourth-quarter selling. We went with the four top picks that have the biggest upside to the Jefferies price targets.
This company is probably the most well-known for constructing websites. GoDaddy Inc. (NYSE: GDDY) is a technology provider to small businesses, web design professionals and individuals. It delivers cloud-based products and personalized customer care. The company operates a domain marketplace, where its customers can find the digital real estate that matches their idea. And it provides website building, hosting and security tools to help customers construct and protect online presence.
GoDaddy provides applications that enable connecting to customers and managing businesses. The company also provides search, discovery and recommendation tools, as well as a selection of domain names for ventures. It provides productivity tools, such as domain-specific email, online storage, invoicing, bookkeeping and payment solutions to run ventures, as well as marketing products.
The Jefferies report noted this:
Underappreciated mid-cap story providing a balanced profile of low to mid-teens revenue growth, margin expansion, and significant free cash flow generation. The stock trades at 19.7x 2019 free cash flow with 3 year free cash flow growth of 25%.
The $90 Jefferies price objective for the shares compares to the $83.81 Wall Street consensus target price. Shares were last seen trading at $63.50, more than 40% below the Jefferies target.
This is the absolute leader in online retail, and last year it opened its first brick-and-mortar store in New York City. 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.
The company serves developers and enterprises through Amazon Web Services, which provides computing, storage, database, analytics, applications and deployment services that enable virtually various businesses. AWS is also the undisputed leader in the cloud now, and many top analysts see the company expanding and moving up the enterprise information value chain and targeting a larger total addressable market.
Consistent with data from 2018, digital marketing users overwhelmingly cited Amazon as the fastest-growing channel for advertising budgets, while many retailers are also leveraging their Amazon advertising data to retarget users on other channels (namely Facebook) to drive traffic/ sales to their own websites (bypassing Amazon marketplace/FBA fees). Jefferies agrees and noted this:
Biggest competitive moat. AWS – recurring revenue and strong profitability, enables aggressive investments back into the core retail biz. At ~20x consensus 2019 EBITDA vs. 27% EBITDA compounded annual growth rate, valuation looks attractive on growth-adjusted basis and our sum-of-the-parts analysis supports even bigger upside (~2x by 2020).
Jefferies has a $2,300 price target, and the consensus target is $2,136.26. The stock closed on Wednesday at $1,659.42, almost 40% below the Jefferies target.