With every major shift in our daily lives due to an unforeseen incident, a degree of manifest change always becomes associated with that incident. Probably the best example is how security changed after the 9/11 hijackings. It’s hard to believe that next year will mark 20 years since one of the worst days in American history, but every time we travel, especially via air, the Transportation Security Administration (TSA) employees will be there to screen us and our carry-on luggage.
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The COVID-19 pandemic undoubtedly will do the same, as many people have been so shaken by the reported deaths that they may permanently alter their lifestyles and activities. Toss in the potential for a new cold war with China weighing on business and relationships here and there, and you have a cauldron for potential change.
This is where companies in the internet and digital media (IDM) arena could thrive and prosper, and the analysts at SunTrust have found three companies they feel could excel that the rest of Wall Street may be underestimating. They noted this in their report:
We analyzed the 36 IDM names under coverage to gauge the correlation between revenue/Adjusted EBITDA revisions pre- and post-covid for each, their stock performance year-to-date, and where our own estimates vary the most from current consensus. We found several instances of dislocation, where the market seems to have over-adjusted to a downward revision, or not enough to an upward one.
After they completed their work, three stocks stood out, and SunTrust rates them all at Buy.
Alibaba
This continues to be among the most bought tech stocks on Wall Street, as well as one of the most valuable brands in the world, but the dislocation with China has weighed on the shares. Alibaba Group Holding Ltd. (NYSE: BABA) runs the largest retail marketplaces (Taobao, TMall) and leading B2B sites (Alibaba.com, 1688.com) in China and Lazada in Southeast Asia. It collects revenues mainly from commissions, marketing services, subscription fees, cloud computing and software, as well as other value-added services.
Alibaba has gone beyond e-commerce and developed into a sophisticated new type of conglomerate in the cyber-era with e-commerce as the base for the rest of the four businesses: logistics, finance, data-computing and cross-border infrastructure.
The SunTrust team noted the underperformance compared with the sector and sees this as an opportunity for a “catch-up” trade. They said this in the report:
As a leading player in e-commerce and cloud in China, we believe BABA should benefit from an acceleration in the digitalization of commerce and enterprise on the back of COVID-19, however, Year to date share performance (+1% vs. STII +18%) does not reflect this prospect, in our view. BABA has underperformed other large cap tech and ecommerce peers, many of which already reflect future benefits from the accelerating shift from offline to online, in our view.
The SunTrust price target for the shares is $240, and the Wall Street consensus target is $231.50. Alibaba stock closed Wednesday’s trading at $218.61 a share, up 2% on the day.
Peloton Interactive
This cycling and exercise platform had a 2019 initial public offering (IPO) that initially performed poorly but has taken off. Peloton Interactive Inc. (NASDAQ: PTON) is the largest global interactive fitness platform, with a community of over 1.4 million members.
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