With every major shift in our daily lives due to an unforeseen incident, a degree of manifest change always becomes associated with that incident. Probably the best example is how security changed after the 9/11 hijackings. It’s hard to believe that next year will mark 20 years since one of the worst days in American history, but every time we travel, especially via air, the Transportation Security Administration (TSA) employees will be there to screen us and our carry-on luggage.
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The COVID-19 pandemic undoubtedly will do the same, as many people have been so shaken by the reported deaths that they may permanently alter their lifestyles and activities. Toss in the potential for a new cold war with China weighing on business and relationships here and there, and you have a cauldron for potential change.

This is where companies in the internet and digital media (IDM) arena could thrive and prosper, and the analysts at SunTrust have found three companies they feel could excel that the rest of Wall Street may be underestimating. They noted this in their report:

We analyzed the 36 IDM names under coverage to gauge the correlation between revenue/Adjusted EBITDA revisions pre- and post-covid for each, their stock performance year-to-date, and where our own estimates vary the most from current consensus. We found several instances of dislocation, where the market seems to have over-adjusted to a downward revision, or not enough to an upward one.

After they completed their work, three stocks stood out, and SunTrust rates them all at Buy.

Alibaba

This continues to be among the most bought tech stocks on Wall Street, as well as one of the most valuable brands in the world, but the dislocation with China has weighed on the shares. Alibaba Group Holding Ltd. (NYSE: BABA) runs the largest retail marketplaces (Taobao, TMall) and leading B2B sites (Alibaba.com, 1688.com) in China and Lazada in Southeast Asia. It collects revenues mainly from commissions, marketing services, subscription fees, cloud computing and software, as well as other value-added services.

Alibaba has gone beyond e-commerce and developed into a sophisticated new type of conglomerate in the cyber-era with e-commerce as the base for the rest of the four businesses: logistics, finance, data-computing and cross-border infrastructure.

The SunTrust team noted the underperformance compared with the sector and sees this as an opportunity for a “catch-up” trade. They said this in the report:

As a leading player in e-commerce and cloud in China, we believe BABA should benefit from an acceleration in the digitalization of commerce and enterprise on the back of COVID-19, however, Year to date share performance (+1% vs. STII +18%) does not reflect this prospect, in our view. BABA has underperformed other large cap tech and ecommerce peers, many of which already reflect future benefits from the accelerating shift from offline to online, in our view.

The SunTrust price target for the shares is $240, and the Wall Street consensus target is $231.50. Alibaba stock closed Wednesday’s trading at $218.61 a share, up 2% on the day.

Peloton Interactive

This cycling and exercise platform had a 2019 initial public offering (IPO) that initially performed poorly but has taken off. Peloton Interactive Inc. (NASDAQ: PTON) is the largest global interactive fitness platform, with a community of over 1.4 million members.

Peloton offers workout bikes and treadmills that include a touchscreen that streams live and on-demand classes for indoor cycling, running, walking, boot camp, yoga, strength training and meditation. The company serves customers in the United States, Canada, United Kingdom and Germany.
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Recent reports suggest that Peloton could introduce a lower-priced treadmill and a rowing machine this year. Data suggests the tread market could be larger than the bike, so a tread priced similar to the bike should see better adoption. With a growing focus on at-home fitness due to the stay-at-home and lockdown efforts around the country, the company has plenty of upside.

The company posted strong earnings for the first quarter, with an outlook for revenue, earnings, subscriptions and churn that was much higher than Wall Street expectations. Analysts continue to anticipate an ongoing benefit from long-term consumer behavior change. They said this in the report:

Peloton is a name we’ve been increasingly bullish on as the pandemic has boosted demand for its at-home fitness products. Our confidence was boosted by an extremely strong earnings report for the first quarter of 2020, and a subsequent 8-k filing on May 11th that indicated Peloton had surpassed 1.0 million connected fitness subscriptions. This implies Peloton added 114,000 subscribers 40 days into the quarter versus a guide of ~159,000 at the midpoint. Further, even as of this week we have observed the time-to-delivery remains unchanged at 7-10 weeks despite Peloton doubling the output of its supply chain during the pandemic.

SunTrust has set its price target at $60, which is above the consensus target of $51.41. Peloton stock closed trading down over 2% Wednesday to $47.83 per share.

SVMK

This off-the-radar company had a reasonably hot IPO in 2018. SVMK Inc. (NASDAQ: SVMK) is a cloud provider of online survey development applications for individuals and enterprises. Its SurveyMonkey enables enterprises to engage proactively with customers and employees through surveys used to gain insight into satisfaction metrics, applications for simplifying market research, as well as analytical tools to identify areas for improvement.

The stock has bounced nicely off the March lows, and the analysts had this to say:

We believe the market continues to under appreciate SVMK, which is up 19% YTD, roughly in-line with our internet index. As a price disruptor and lightweight solution in the enterprise feedback space, we believe SVMK’s competitive positioning has improved since the COVID-19 crisis began, with companies and organizations around the world seeking feedback from their stakeholders. We see strong prospects for further positive estimate revisions (Calendar 2021 revenue estimates are up 1% YTD) driven by strong top of funnel demand and sales execution, and potential for multiple expansion, as higher quality enterprise revenue continues to make up a bigger portion of the P&L.

The $24 SunTrust price target compares to the posted consensus target of $23.88 and Wednesday’s closing share price of $21.65.

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On these three top stocks, the SunTrust team is away from the street consensus, and they could offer solid upside potential. It should be noted that all are better suited for aggressive growth accounts, as another sharp downturn like the one we saw back in February and March could push shares down hard.

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