Amid the market carnage and turmoil, consider buying shares of some of the leading Internet companies. That’s the advice from Mizuho Securities analyst James Lee.
“As coronavirus continues to spread globally, we are seeing a meaningful selloff in the U.S. and China internet space,” he wrote in a research note. “Clearly, online travel is getting hit the most, down nearly 30% over the last two weeks, followed by advertising at 20% and ecommerce at nearly 10%. We believe the impact is transitory, but it’s hard to time the bottom given the uncertainty of an unknown epidemic.”
Lee thinks investors should buy stocks that either showed strong underlying business trends in the fourth quarter or are positioned to benefit from the emergence of travel restrictions, more people working remotely, and a preference among consumers for staying at home.
Here is how Lee is thinking about the five stocks.
Amazon: The company could benefit from increased demand for health-care, grocery, and consumer packaged-goods products, Lee wrote. He added that “ecommerce adoption will likely increase, as consumers will likely opt to purchase online more often as opposed to shopping in stores, especially in the highly infected markets.”
Facebook: “The stock sold off nearly 20% over the last two weeks, but we believe exposure to travel is limited to low-single digits. In addition, increased demand for games, entertainment and ecommerce could benefit Facebook’s ad business.”
Baidu: The China-based search engine’s stock is down 20% over the past two weeks. Lee said that engagement was strong during the epidemic, in particular for maps, medical search and Q&A with doctors. He said “post-coronavirus potential catalysts include easing competitive pressures and margin expansion.” He thinks the stock is undervalued.
Uber: “We believe the stock is oversold, down over 30%, and estimate airport-related trips could impact EBITDA by only 10% and increased demand in food delivery could reduce promotions and thus lower EBITDA losses,” he wrote, referring to earnings before interest, taxes, depreciation, and amortization.
He contends that the current price implies value from only the rides business, “with free call options in food delivery and freight businesses.”
Trip.com: Lee said the Chinese online travel company’s ability to meet its financial forecasts for the first quarter and Wall Street expectations for 2020 is clearly at risk due to travel restrictions. “We expect online travel to recover more slowly than ecommerce and advertising by one quarter, and anticipate a full recovery in Q1 2021,” he wrote.
While he kept a Buy rating on the stock, he trimmed his target price to $35, from $40. “Although we are cutting estimates,” he wrote, “we continue to believe the impact is short-term, not structural, and the company remains a best-in-class travel play with easing competition in domestic China and limited competition for outbound travel.”
All five stocks were substantially lower on Wednesday as the broader market dropped.
Write to Eric J. Savitz at [email protected]
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- Verizon is canceling home internet installations during the pandemic – The Verge
- Ethiopia’s internet shutdowns are disrupting millions of lives – Quartz Africa
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