Top analyst Colin Sebastian at Baird is placing his chips on Internet’s heavyweight stock giants for the new year. Comparing large-cap tech leaders Facebook Inc (NASDAQ:FB), Amazon.com, Inc. (NASDAQ:AMZN), and Alphabet Inc (NASDAQ:GOOGL) to California’s climbing redwood trees, the analyst commends these market cap winners for a legacy of outclassing the rest on the market gameboard. Yet, could these “Giant Redwoods” scale even higher?
Yes, Sebastian argues, making a bullish case for why these tech titans are worthwhile grand slams in Wall Street for 2018: “Why we continue to favor investments in large Internet platforms (the ‘Redwoods’). Despite significant outperformance vs. broader markets, Internet platforms still represent compelling investments, in our view. To put the strength and resilience of Alphabet, Amazon and Facebook in perspective, we believe they share characteristics with the ‘giant redwoods’ of the West Coast – dominance within their ecosystems, enduring growth, and ability to withstand a variety of threats. In order of preference, our top large-cap picks are GOOGL, AMZN, FB.”
Keep in mind, Amazon, Facebook, and Alphabet stand among the five leading market caps that comprised of over 30% of total gains in the S&P 500 just looking at the last three years of an overall index that generated $4.5 trillion. Include Alibaba, Netflix, Apple and Microsoft, “and market cap growth for these tech leaders exceeds the $1.9 trillion in total U.S. GDP growth over the same time period,” writes the analyst.
Moving forward, the analyst spotlights “room for further outperformance,” underscoring “multiples expanded only modestly” for these tech leaders. Projecting that 85% to 90% of market cap gains for the Internet-verse lately have surged on back of revenue-meets-profit-growth, the analyst likewise notes secular growth trends continue to be geared for “the ‘Internet-first’ economy;” trends Sebastian wagers ought to sustain momentum for years to come. This is a backdrop that lends itself to even more outclasses coming in shares, the analyst believes, all while boasting more-than-sufficient prospects to generate solid over 20% revenue and earnings growth throughout both the medium-term as well as long-term. This in turn will widen “competitive moats” for these Internet giants.
These “Redwoods” stand out to Sebastian for the following strengths: “engineering focus, massive scale, founder-control, and long-term orientation,” as the analyst contends: “What we witness at Alphabet, Amazon and Facebook is continuous improvement and innovation that is difficult for many other public companies to match.” Competitors like Twitter and Snap are mere “pinecones” against these “Redwoods,” ones Sebastian views “opportunistically.”
Therefore, any threats circling the large-cap Internet platforms are at the end of the day “more bark than bite,” as far as Sebastian is concerned.
As such, the analyst stands strongly bullish on these top market picks for 2018, reiterating an Outperform rating on GOOGL stock with a $1,150 price target; maintaining an Outperform rating on AMZN stock with a $1,100 price target; and maintaining an Outperform rating on FB stock with a price target of $200 price target.
Colin Sebastian has a very good TipRanks score with a 76% success rate and a high ranking of #18 out of 4,727 analysts. Sebastian realizes 24.8% in his annual returns. When recommending GOOGL, Sebastian yields 19.6% in average profits on the stock. When suggesting AMZN, Sebastian earns 38.7%. When rating FB, the analyst garners 30.9%.