With the average market-cap valuation on internet stocks hitting a five-year low in December, the battered sector is looking more attractive, a report from Goldman Sachs said Friday.
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Amazon (AMZN), Google (GOOGL), PayPal (PYPL), Grubhub (GRUB) and Netflix (NFLX) "represent the best risk/reward propositions in the sector," the 59-page report said, all of them with buy ratings.
Goldman Sachs upgraded Etsy (ETSY) and Expedia (EXPE) to buy from neutral and downgraded eBay (EBAY) and Snap (SNAP) to neutral from buy. The report also said Spotify (SPOT) and Twitter (TWTR) "offer the most upside among our other 'Buy-rated' names." Goldman also maintained a buy rating on Facebook (FB).
Goldman's Friday report updated ratings, estimates and price targets to reflect the brokerage's current outlook. In the second half of 2018, the basket of internet stocks followed by Goldman Sachs "significantly underperformed" the S&P 500. Mutual funds and hedge funds shifted out of the sector, the report said. Average internet valuations on a market-cap weighted basis declined to five-year lows in December.
"Mutual fund and hedge fund positioning has changed significantly over the last six months," the report said. "Average allocations by mutual funds to Information Technology reached five-year lows while hedge funds were most underweight the sector."
Attractive View On Internet Stocks
Goldman said underlying growth in e-commerce and online advertising demand should continue to drive share gains for most internet stocks. That's despite expectations for modest deceleration.
"We maintain an 'Attractive' view on the Internet sector," which offers "a relatively attractive risk-reward ratio." But risks remain, the report said.
"While we believe underlying fundamentals are generally strong, regulation remains the most in focus given actions in Europe around data, privacy, and competition, as well as discussions of whether the U.S. and other markets may follow a similar path."
On a strong day in the stock market, Amazon stock climbed 5% to close at 1,575.39 on the stock market today. Google finished up 5% to 1,078.07. PayPal jumped 5.1% to 86.27, while Grubhub soared 6.3% to 75.80. Netflix surged 9.7% to 297.57.
Goldman adjusted the price target on several companies. It lowered Amazon to 2,000 from 2,200 and cut Grubhub to 105 from 130. PayPal stock got a raise to 98 from 94. Goldman cut Spotify to 160 from 200 and reduced Twitter to 28 from 33.
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The post Roughed Up Internet Stocks Starting To Look Attractive, Says Goldman Sachs appeared first on Investor's Business Daily.
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