Top SunTrust Robinson analyst Youssef Squali is now even more bullish on his favorite internet stocks which he says are rapidly disrupting traditional retail and media players. As a result he believes value will continue accrue to the larger, stronger players like Alibaba Group Holding Limited (NYSE:BABA), Facebook, Inc. (NASDAQ:FB) and Amazon.com, Inc. (NASDAQ:AMZN).
Even though 2017 was a very strong year, Squali is confident the Internet and Digital Media Group will continue to “outperform the broader markets again this year.” He attributes this to a handful of different factors including “a strengthening economy, high consumer sentiment, secular Internet-ization of the global economy, superior growth and attractive valuations.” Crucially, he says that online advertising revenue will continue to show robust growth with a “sustained shift of ad dollars to digital.”
At the same time, Squali now considers “the recent tax overhaul [which] leads us to raise price targets on our favorite 2018 names.” For example, in the January 12 client report, he bumps up his Facebook price target from $225 to $240 (35% upside potential) and his Amazon price target from $1,270 to $1,400 (7% upside potential). Other stocks that also get a boost include: Alphabet ($1,250 from $1,180), Expedia ($180 from $172) and Priceline ($2,200 from $2,000).
Note that Youssef Squali has a very strong track record on his recommendations according to TipRanks. Indeed, he is ranked as one of the site’s Top 100 analysts (out of 4,750) based on his impressive 71% success rate and impressive 19.2% average return.
With this encouraging news in mind let’s dive down further into his take on BABA; FB; AMZN:
Alibaba Group Holding Ltd
Alibaba is Squali’s third favorite large-cap long. He has a buy rating and $210 price target (15.5% upside) on the Chinese e-commerce giant. Crucially, Squali believes that BABA has a unique competitive advantage over its peers both in and around China. This is down to four key reasons: 1) a differentiated model 2) strong brand 3) unmatched scale (BABA already controls over 80% of Chinese e-commerce spend) and 4) an experienced management team.
All these factors mean BABA is perfectly positioned to take advantage of China’s rapidly growing middle class. Squali says: “With accelerating top line growth, 549M+ mobile users, $550+B in GMV (TTM), industry leading EBITDA margin (60%+ in core commerce), and a rapidly growing Cloud business, BABA offers one of the best plays on growth of the middle class in and around China, of consumer spending, and of the digital economy at large, in our view.”
The Street outlook on BABA is very encouraging. In the last three months the stock has received no less than 16 buy ratings and no hold or sell ratings. Meanwhile the average analyst price target of $217 suggests big upside potential of 19% from the current share price.
Facebook is the number 1 stock right now for Youssef Squali. He calls it the ‘pre-eminent social networking site’ and notes that FB already boasts over 2 billion monthly active users. Most interestingly, he writes that the stock is ‘still in its early phase of growth.’ He explains that given its enormous reach and time spent statistics, as well as the social context the company will capture a disproportionate high percentages of brand ad dollars over the next 2-3 years. Advertisers pay FB to boost posts on user’s newsfeeds and can use this approach to target specific user profiles that are most relevant to the brand.
“Facebook has become the foundation of the social web, effectively leveraging The Social Graph (connections between people and their friends and interests) to generate significant value for users, developers and advertisers” writes Squali. Perhaps unsurprisingly,
TipRanks also reveals that FB has a ‘Strong Buy’ analyst consensus rating. This is based on 28 buy, 1 hold and 1 sell rating in the last three months. These analysts see the stock spiking to $218- 22% above the current share price.
E-commerce giant Amazon has soared due to consumers’ embrace of online shopping and the rapid rise of mobile e-commerce. At the same time, Amazon also offers shoppers an alluring combination of easy price comparison, choice and fast/free delivery with no-hassle returns. Indeed, it makes sense that traditional retailers like Walmart are now working hard to boost their online offerings.
Squali notes that the company is now trading at over $1,250 and says: “While the stock is not cheap on a relative basis, it is fundamentally compelling, in our view.” Indeed, Amazon is Squali’s second favorite large-cap after Facebook. He explains why here:
“We find management’s maniacal focus on the customer (by focusing on selection/price/ convenience) and its leveraging of technology innovation to disrupt commerce, entertainment and IT services, to be strong differentiators and sustainable competitive advantages.” This focus will enable Amazon to grow disproportionately faster than peers- and sustain above-peers valuation for years to come according to Squali.
Overall, we can see from TipRanks that Amazon also boasts a ‘Strong Buy’ analyst consensus rating. It has scored an impressive 34 buy ratings in the last three months vs just 1 hold rating. The average analyst price target of $1,365 stands at a 5% upside from the current share price.