SunTrust Says Buy These 2 FANG Stocks Now on Huge Market Pullback

By Lee Jackson Updated Jan 13, 3:26PM EST · Published Jan 5, 10:05AM EST

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SunTrust Says Buy These 2 FANG Stocks Now on Huge Market Pullback — © courtesy of Facebook Inc.

The last thing most investors were expecting was a monster sell-off, the largest on the first trading day in 15 years, to welcome in the new trading year. What it does for investors with some dry powder is possibly provide the best entry point to stocks since the correction we saw last August and September.

A new research report from SunTrust Robinson Humphrey makes the case for two of the FANG stocks (Facebook, Amazon, Netflix and Google), plus a very contrarian third pick that could hold big upside for investors willing to be patient. All are rated Buy at SunTrust.

Alphabet

The technology giant is the top pick at many firms we cover on Wall Street for 2016. Alphabet Inc. (NASDAQ: GOOGL), better known as Google, recently introduced Android Pay, a revamped photos and a lightweight Android derivative operating system they call Brillo, which is designed to power the Internet of Things. The company released a new mobile version for the Android OS last fall.

Google remains the undisputed leader in Internet search, and when you add in a diverse portfolio that includes everything from the Android platform, to YouTube, Google Wallet for automatic pay and the Google Flights tool, continued growth is not out of the question. YouTube watch time accelerated a massive 60% year over year, and the average view session was up 50% to 40 minutes. The YouTube surge represented the best growth in two years. The SunTrust team notes that company has six separate properties reaching a billion users.
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The SunTrust team lauds the upcoming catalysts on the new Alphabet structure, which they feel will highlight core strength for investors. The company has shown consistent revenue growth, margin stabilization and finally gave cash back in the form of a $5.1 billion stock buyback. Last, but certainly not least, Alphabet remains one of the best overall portfolio plays that focuses on the biggest Internet trends: The mobile/multi-screen shift, wearable devices, video, the Internet of Things and much more. Alphabet delivers investors the full package.

The SunTrust price target is a monster $850. The Thomson/First Call consensus price target is $852.63. The stock closed trading on Monday at $759.44.
Facebook

The huge social media leader posted gigantic third-quarter numbers that truly blew most of Wall Street away. Facebook Inc. (NASDAQ: FB) has Instagram, for which some analysts have projected revenues tripling in 2017 from 2016, as well as Premium Video and Graph Search capabilities to strengthen the social media giant’s earnings flow.

Some analysts feel that Facebook can drive revenue growth even without a huge increase in advertising placement. Facebook and Instagram account for 5% of users total media time, but the company doesn’t come close to capturing 5% of total advertising budgets. SunTrust notes that the company has a billion daily users that devote 20% of time spent on mobile devices to the platform.

Most Wall Street analysts point to the fact that Facebook remains the top beneficiary of the adoption of mobile Internet trends, with total U.S. Internet time spent on Facebook and Messenger. Other metrics continue to explode, and the key is no viable challengers are anywhere in sight. Positive monthly data use, easier growth comparisons and positive data on ad revenue drivers are the top catalysts.

The SunTrust team views Facebook’s longer term opportunities as almost unmatched by its mega-cap consumer Internet peers. Plus, they expect continued improvements in existing properties to drive growth. Facebook has three additional scaled platforms (WhatsApp at 900 million, Messenger at 700 million and Search with over 1.5 billion searches per day) that remain unmonetized and could really drive future earnings growth.

Facebook also announced last year a willingness to share ad revenue to acquire premium content, a totally new avenue for the company. They hope to draw content away from Google’s YouTube. Facebook will offer contributors 55% of the revenue from ads that appear alongside videos, the same split as YouTube. Daily video views have gone from a billion to 8 billion since last September.

SunTrust has a $125 price target, while the consensus target is $124.23 The shares closed Monday at $102.22.

Twitter

The stock was hammered again after reporting earnings and user numbers that came in below expectations. Twitter Inc. (NYSE: TWTR) is either a total value tech buy or caught in a death spiral, depending on who you ask on Wall Street. High multiple valuations and overall terrible negative market sentiment has trampled the stock and made it a favorite target of short sellers.

SunTrust remains positive on the stock and, with exception of a few additional Wall Street firms, everybody has given up on the Twitter story, which does make it a solid contrarian play. One main problem is the company added only 2 million core monthly active users, which the analysts feel are stabilizing. The analysts also cite management stabilization and clarification as a key driver for the stock.

The SunTrust team feels that while challenges remain, they think current estimates are reasonable, and the users metrics have at least stabilized. They also think it is also a potential takeover target. In addition, the impact of Double Click, Tellapart the new ad units and expanded self-serve should help monetization. It’s also important to remember that the Google traffic partnership is a catalyst that lies in front of the stock.

The SunTrust price target is $34, and the consensus target is $33.72. The stock closed on Monday at $22.56.
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While all these stocks are for more aggressive accounts, the recent huge sell-off could be providing an entry point for investors looking to scale in fresh capital or to add to existing positions. Each of these companies has little competition to their central franchise, and shouldn’t any time soon.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.