- Investors looking to buy the dip amid coronavirus volatility should shift cash to internet stocks, UBS analysts said Friday.
- The outbreak has driven spikes in the usage of online streaming, tutoring, and medical consultation services, and the risk of increased time indoors could further boost the sector, according to the bank.
- The sector faces risks from antitrust regulation around big tech firms and connections to the travel industry, the bank warned.
- UBS recommends exposure to the Nasdaq Internet Index, which includes stakes in Netflix, Facebook, Amazon, and other household names.
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Internet stocks offer “some relief” for investors with little appetite for coronavirus risks, analysts at UBS wrote Friday.
US stocks posted a strong rebound Monday, ending a streak of losses that pushed indices deep into correction territory through the end of February. Yet some experts are calling the relief rally premature and warning investors to stay defensive until more is known of the coronavirus outbreak’s trajectory. The epidemic remains a dire source of volatility for risk assets, and Treasury bonds’ record-low yields make it more expensive than ever to park cash in the popular safe-haven.
The growing risk of coronavirus becoming a pandemic is weighing on investors’ desire to stay exposed to stocks, but the recent sell-off presents an alluring opportunity in internet equities, according to UBS. The heightened market volatility reminded the bank’s analysts “of the power of the internet,” and the chance for new quarantine orders in the near term could boost usage of popular online services, UBS said.
The team pointed to recent spikes in the use of online medical consultation, tutoring, and streaming services since the outbreak began. The Nasdaq Internet Index – which includes internet giants such as Facebook, Netflix, and Amazon – grants investors exposure to a diverse set of firms that could gain from populations spending more time indoors, UBS said.
“We view the recent market sell-off as an attractive entry point, and the stay-at-home nature of the companies offer some shelter relative to the broader market,” the team of analysts wrote.
The index’s biggest risk is its holding of travel-related firms, the team added, as the sector remains under considerable pressure from the epidemic. Major airlines swiftly halted travel to and from heavily afflicted regions in recent weeks, and further expansion of the outbreak could drag further on travel and tourism companies.
UBS also alerted clients to the latent risk that the biggest companies in tech remain under regulatory scrutiny for data privacy controversies and antitrust concerns. Calls from lawmakers and Democratic presidential candidates to break up big tech firms have prompted some worry around whether the household names will stay the same if a regulation-friendly administration takes office.
The bank remains positive on the sector despite fresh regulatory stresses. Shifting cash to internet companies before markets resume their bullish climb gives investors “one way to gain equity exposure to the pockets of the market that are well,” UBS said.
The Nasdaq Internet Index gained 2.7% in Monday’s trading session.
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