24/7 Wall St.

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.

GoDaddy

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.

Amazon

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.

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Alphabet

The search giant continues to expand and, while search is king, the cloud presence is growing fast. Alphabet Inc. (NASDAQ: GOOGL) is a global technology company focused on 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.

Back in the fall, Google outlined expanding capabilities to facilitate commerce, capitalizing on the “treasure trove” of data provided by seven different properties, each with at least a billion active users (Android, Search, Chrome, Maps, Play, YouTube and Gmail). Smart shopping campaigns leverage machine learning to make sense of touch points along the consumer purchase path, including better offline attribution capabilities (locally oriented searches up 200% over past two years) and improved purchase conversion rates (20% on average).

Jefferies said this about the company:

Core search/ad strength continues with upside potential from YouTube, Cloud, and other bets. Look for additional disclosures to be a catalyst. The stock trades in-line with the S&P 500 at ~11 times 2019 EBITDA despite >2x 2019 revenue growth (18% vs. 7%) and >2x EBITDA margins (46% vs. 20%).

The Jefferies price target is $1,450, and the consensus target is $1,349.28. The shares closed Wednesday at $1,081.65, so the Jefferies target represents 34% upside.

IAC/InterActiveCorp

This is another top Jefferies pick with big upside to the target price. IAC/InterActiveCorp (NASDAQ: IAC) operates a diverse collection online media assets ranging from search to personals, with Ask.com and Match.com driving the bulk of its revenue and profits. IAC generates revenue from a combination of advertising (both search and display), subscriptions and transactions.

The 2017 merger between Angie’s List and Home Adviser, IAC’s home services marketplace, was well received. The Jefferies analysts are very positive on the company and noted this:

This conglomerate is trading at a ~$1.5 billion discount to its ownership in Match.com and Angies List and at just 14x 2019 EBITDA. Impressive track record that does not get enough credit.

Jefferies has set its price target at $240. The consensus target is $239.71, and the stock closed most recently at $185.31. So the upside to the Jefferies target is right at 30%.

Two mega-cap industry leaders and two smaller plays for investors who feel that the internet remains the ubiquitous ruler of almost everything for today and tomorrow. While much better suited for aggressive growth accounts, these stocks offer solid entry points with the market still down big from highs set in the fall.