It has become difficult to assess companies by sector classification these days. After all, many technology platforms and platforms have been migrated into media or telecommunication services. That’s why many analysts and specific fund managers are in the “TMT” group: technology, media and telecom.
Wedbush Securities has used the recent market weakness to upgrade four companies to its Best Ideas List, after so many companies have met their downside targets in this market panic selling pressure over the past month. The two key technology names here, at least in the classical sense, are Amazon.com Inc. (NASDAQ: AMZN) and Facebook Inc. (NASDAQ: FB). Both stocks have slid during the societal change and market sell-off that has been seen since February, but both obviously have potential upside from the changes that have been made around the COVID-19 outbreak.
Before thinking that high-valued TMT shares could be winners during a market panic, note that Amazon just announced it would hire up to 100,000 people to meet massive demand from online orders while the retail segment is suffering from social distancing and retail store closures. As for the leader in social media, more free time and at-home time means more time for people to spew their opinions online.
Amazon closed at $1,689.15 ahead of this call, and Wedbush has a $2,325 target price. Facebook is also rated as Outperform and its most recent close of $146.01 is against the firm’s target price of $250. Amazon shares traded up nearly $100 at $1,785 on Tuesday morning. Facebook shares were up just five cents at $146.06, but the stock is down 35% from its all-time high of $224.20.
According to Wedbush:
We view Amazon as uniquely-positioned to gain meaningful market share across a number of verticals in a multitude of countries driven by coronavirus-related changes in consumer behavior. Over the near term, consumers appear to be spending more of their time and money shopping online in order to avoid crowds, to limit the amount of time wasted searching for products that could be sold-out at brick-and-mortar outlets, and, in some situations, to adhere to the rules implemented by different governmental bodies. This appears to have driven the supply shortages and delivery delays that Amazon disclosed over the weekend.
Facebook was added to the Best Ideas List as it has likely seen significant upticks in user engagement and ad impression growth across multiple platforms due to the changes in society that the coronavirus has created. The Wedbush report said:
Given the seemingly unprecedented and unrelenting volume of news related to the global pandemic, the reliance that a large percentage of the world’s population has on Facebook as its primary source of information, and an increasingly-pervasive stay-at-home attitude accentuated in some instances by the government, we believe that many Facebook users have been accessing its properties at meaningfully elevated levels over the last several weeks.
Peleton Interactive, Inc. (NASDAQ: PTON) may not seem like a technology company since it’s in fitness, but its main product is a seat that happens to be a bike that connects you to a social scenario that happens to be a spinning class, all while the company collects month subscription fees. Wedbush rates Peloton as Outperform, and the most recent $22.25 closing price comes with a $35 target. Wedbush said:
We believe we are in the early stages of the “work-in” trend, a long-term shift toward at-home fitness, based on a combination of worsening time poverty and evolving technology. Additionally, not only is Peloton arguably the company in our coverage best insulated from the current coronavirus pandemic, but increasingly we see Peloton as a potential beneficiary of widespread social distancing efforts, accelerating what we believe is already an inevitable shift.
Regions Financial Corp. (NYSE: RF) is of course not a technology company, but it was Wedbush’s fourth addition to the Best Ideas List. The firm rates it as Outperform with a $14 target price, compared with its $8.31 recent close. The report said:
Regions Financial is one of best positioned banks to handle this low rate environment. Added $23 billion of hedges leading to the margin essentially neutral to cuts in short-term rates. Regions expects the NIM to improve too low-to-mid 3.40’s in 1Q20 (vs. 3.39% in 4Q19) and relatively stable in 2Q. Regions started to add hedges to partially protect against the decline in 10-yr treasury yield. Less credit risk as RF derisked the loan portfolio past 5-years exiting several billon dollars of higher risk loans. Dividend yield is attractive at 6.6% and should be safe in an extreme downturn as Regions passed the Fed’s stress test each year. Regions is trading at 0.79X vs. its median of 1.70X. To be ultra conservative, if we apply peak net charge-offs of 316 bp of average loans during the financial crisis (vs. 20-year average of 99 bp), Region Financial’s 4Q20 tangible book value would decline 19% to an estimated $9.26; and would still be trading below tangible book value at 0.91X and remain well capitalized.
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