Bank of America has high hopes for these tech stocks.
Tech stocks have led the stock market higher for more than a decade. However, some investors are growing concerned that President Joe Biden and a Democrat-controlled Congress could be bad news for big tech companies. Democrats have historically pushed for more corporate regulation to protect consumers, which puts big tech companies in the crosshairs of any antitrust or data abuse crackdowns. Regardless of regulatory concerns, the Bank of America analyst team says there are plenty of great investing opportunities within the technology space in 2021. Here are its top nine internet stock picks as the Biden era begins.
Alphabet (ticker: GOOGL)
A more harsh regulatory environment could be particularly difficult for the so-called FAANG stocks, Facebook (FB), Amazon.com (AMZN), Apple (AAPL), Netflix (NFLX) and Google parent company Alphabet. However, analyst Justin Post says Alphabet is his top 2021 stock pick within the FAANG group. Post says Alphabet’s leading search technology, its Android mobile operating system and its YouTube streaming video platform are a powerful combination. In addition, Google’s Waymo subsidiary recently became the first company to offer fully autonomous vehicle services to the public. Bank of America has a “buy” rating and $2,150 price target for GOOGL stock.
Expedia Group (EXPE)
The travel industry was crushed in 2020, but Post says online travel giant Expedia is the best-positioned internet travel stock to benefit from a widespread economic reopening in 2021. Post prefers online travel stocks to e-commerce stocks in 2021. He is expecting a sharp rebound in travel bookings in the second half of the year while e-commerce sales growth slows. He is projecting earnings multiple expansion for online travel stocks in 2021, similar to the type of multiple expansion e-commerce stocks experienced in 2020. Bank of America has a “buy” rating and $153 price target for EXPE stock.
Analyst Nat Schindler says online auto retailer Vroom is the best-positioned small-cap internet stock for a 2021 economic reopening scenario. Schindler is bullish on the online auto market, which he says is extremely large and fragmented at this point. Online auto sales market penetration is small at only about 0.9% as of 2019 compared with 15% penetration for e-commerce as a whole. Schindler says Vroom is still in the nascent stages of its expansion opportunity, and the stock is well-positioned for long-term upside. Bank of America has a “buy” rating and $65 price target for VRM stock.
Uber Technologies (UBER)
Uber Technologies is a leader in the ride-hailing and food delivery markets. Post says Uber’s core ride-hailing business is well-positioned for a major rebound in 2021, while its Uber Eats food delivery business could take a hit as the economy opens back up fully. In December, Uber completed a $2.65 billion all-stock acquisition of food delivery giant Postmates, which Post says will be a significant revenue contributor in 2021. Uber also took a 26% stake in autonomous vehicle company Aurora Innovation in December. Bank of America has a “buy” rating and $66 price target for UBER stock.
Social media giant Twitter has had a controversial couple of months, culminating with a permanent ban of former President Donald Trump from its platform in January. Looking ahead, Post says Twitter will likely continue to face headline risk related to its platform’s content, but the stock could get a tremendous tailwind from the return of major events, including possibly the 2021 Tokyo Olympics. Post says Trump‘s ban highlights Twitter’s content risks, but much of the potential content problems and regulatory risks are already priced into the stock. Bank of America has a “buy” rating and $58 price target for TWTR stock.
Amazon is the U.S. leader in e-commerce and cloud services. While Amazon faces regulatory risks, Post is bullish on the company’s long-term penetration opportunity in both its cloud business and online retail business. Post says Amazon faces difficult year-over-year comparisons in 2021 given its businesses benefited from social distancing, but e-commerce penetration is still relatively low and Amazon has been ramping up its fulfillment capacity. In addition, the health crisis merely accelerated an inevitable shift in the economy to a cloud-based business environment. Bank of America has a “buy” rating and $4,000 price target for AMZN stock.
Peloton Interactive (PTON)
Interactive fitness platform Peloton Interactive was one of the biggest winners from the social distancing environment in 2020. The stock is up more than 430% in the past year, so investors are concerned about how much additional upside they can expect as the economy reopens in 2021. However, Post says Peloton is a long-term market penetration story, similar to Amazon. Post says Peloton bike demand remains “robust” heading into 2021, while the upcoming launch of a new Tread product expected in the March quarter could be the next bullish catalyst for the stock. Bank of America has a “buy” rating and $175 price target for PTON stock.
Social media platform Snap significantly outperformed competitors Facebook and Twitter in the past year, gaining about 180%. However, Post says Snap is one of his top average revenue per user, or ARPU, and margin expansion investments in the internet stock group. Post says he is bullish on Snap’s unique, younger demographic, which is attractive to advertisers. In addition, he says the platform’s high engagement and long-term ARPU expansion opportunity are compelling. Post is projecting revenue growth will accelerate from 42.5% in 2020 to 48.1% in 2021. Bank of America has a “buy” rating and $55 price target for SNAP stock.
Post says social media platform Pinterest will face difficult year-over-year comparisons in 2021 given it was a social distancing winner in 2020. However, he says Pinterest has long-term ARPU and margin growth opportunities that can drive its valuation higher. Post estimates fourth-quarter advertising revenue growth was 60%, significantly higher than Snap’s growth rate of up to 50%. Post also estimates Pinterest generated 61% revenue growth in the quarter. He says user growth, shopping features and a strong product pipeline justify a higher valuation for Pinterest. Bank of America has a “buy” rating and $72 price target for PINS stock.
Tech stocks for a new administration:
— Alphabet (GOOGL)
— Expedia Group (EXPE)
— Vroom (VRM)
— Uber Technologies (UBER)
— Twitter (TWTR)
— Amazon.com (AMZN)
— Peloton Interactive (PTON)
— Snap (SNAP)
— Pinterest (PINS)
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