RBC Has 3 Favorite Large Cap Internet Stocks to Buy Now

By Lee Jackson Updated Jan 13, 7:57AM EST · Published May 17, 10:55AM EDT

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RBC Has 3 Favorite Large Cap Internet Stocks to Buy Now — © Thinkstock

[cnxvideo id=”655354″ placement=”ros”]Last year the so-called FANG stocks were the rage of the market with the companies making up the group rising 50% on average. However, 2016 has been quite a different story, and while things are decidedly better now that we are in May, they are not close to matching last year’s heady upside. One thing is for sure, the internet demand trends are remaining very consistent, and the top companies will continue to thrive.

A new RBC research report makes the case that things continue to be strong in the sector, and some of the firm’s favorite stocks are now on sale. Three large cap stocks are top picks and they look solid for aggressive accounts that have capital and can tolerate a degree of volatility.

Alphabet

The technology giant is one of the top large cap picks at RBC. Alphabet Inc. (NASDAQ: GOOGL), through its subsidiaries, builds technology products and provides services to organize the information. The company offers Google Search, which provides information online, and Google Now, which offers information to users when they need it.

It also provides YouTube, which offers video, interactive and other ad formats. Android is an open source mobile software platform. Its hardware products include Chromebook, Chrome OS devices, Chromecast and Nexus devices. Google Play is a cloud-based digital entertainment store for apps, music, books and movies, while Google Drive is a place for users to create, share, collaborate and keep their stuff. Google Wallet is a virtual wallet for in-store contactless payments.
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Top Wall Street analysts cite the company’s growing presence in the cloud, which some ultimately feel can be a $7 billion revenue opportunity by 2020. The current cloud products offered by the company are improving, and the analysts cite five potential strengths and key potential adoption drivers for the company. With the company targeting a total addressable market of $120 billion by 2020, the analysts feel revenue can jump from $1 billion last year to $7 billion by then.

The company reported results for the quarter that were below expectations, but overall most analysts called it a “good quarter.” Despite missing expectations the results overall were still solid with 23% or so currency and hedging neutral (FXHN) revenue and non-GAAP operating income growing 21% year over year on 1% margin expansion. RBC notes that Core Google is generating consistent revenue growth/acceleration and margin stabilization and expansion. Toss in a solid stock buyback and a very cheap valuation, and the stock is compelling.

The RBC price target is a massive $1,000, and the Thomson/First Call consensus price target is posted at $910.86. Shares closed Monday at $730.30.
Netflix

This Wall Street darling has been mauled since early December, down almost 30% and could offer solid upside. Netflix Inc. (NASDAQ: NFLX) is the world’s leading internet television network, with more than 70 million members in over 190 countries enjoying more than 125 million hours of TV shows and movies per day, including original series, documentaries and feature films. Members can watch as much as they want, anytime, anywhere, on nearly any internet-connected screen. Members can play, pause and resume watching, all without commercials or commitments.

Netflix is available on virtually any device with an Internet connection, including personal computers, tablets, smartphones, smart TVs and game consoles, and it automatically provides the best possible streaming quality based on available bandwidth. Many titles, including Netflix original series and films, are available in high-definition with Dolby Digital Plus 5.1 surround sound and some in Ultra HD 4K. Advanced recommendation technologies with up to five user profiles help members discover entertainment they’ll love.

RBC notes that while weak international subscriber guidance and price change worries have weighed heavily on the shares, the firm sees the stock as on sale for investors with the ability to look farther out. In fact, over the long term RBC sees earnings per share at $10, which would mean big upside from current levels. With a unique franchise, outstanding management and a strong market position, the stock could double over the next three years.

The $140 RBC price objective compares to a consensus target of $118.41 and the most recent close at $89.12.

Priceline

This internet travel leader was a big 2015 second-half laggard and took a huge leg down earlier this year before rebounding sharply. Priceline Group Inc. (NASDAQ: PCLN) operates Booking.com, which provides online accommodation reservation services, as well as Priceline.com, which offers hotel, rental car and airline ticket reservations services, as well as vacation packages and cruises through its Name Your Own Price and Express Deals travel services. It also operates Agoda.com, an online accommodation reservation service for consumers in the Asia-Pacific region, and RentalCars.com, which offers car rental reservation services.

Trading at a low 16 times fiscal year 2017 earnings estimates, the travel giant is seen by many Wall Street analysts as an “open-ended” growth story. Many on Wall Street continue to see comparisons easing for international bookings and margins will improve in the second half of the year and into 2016. Some on Wall Street feel that expectations for a pickup in European consumer spending remain positive, while the company’s dominant market share has helped it to fend off competitive threats. The weakening dollar will make European travel more expensive, though.

RBC feels Priceline has a very long runway as it only accounts for 8% of lodging partner room night sales. With the company investing in China, vacation rentals, alternative accommodations, Latin America and business travel, there are many avenues for solid growth.

RBC has a massive $1,600 price objective, while the consensus price target is $1,438.44. The shares closed on Monday at $1283.47.
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All the RBC top picks have huge upside potential to the firm’s price target for patient investors. The best part is the entry points for these internet leaders are the lowest they have been in some time, offering tremendous value as well. While only suitable for aggressive growth accounts, these are solid long-term buys.

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.