Without question, 2014′s second fiscal quarter has gotten off to a rough start, what with the recent slowing of momentum stocks and overall sluggishness in U.S. equity markets. But true to the spirit of Warren Buffett's famed counsel to 'be greedy when others are fearful,' one Stifel analyst says that the sea of red amongst stocks that until recently were more accustomed to fields of green creates an ideal buying opportunity for popular names like Facebook, RetailMeNot, Netflix and Yahoo .
Momentum tech stocks have taken a tumble in recent days, with Facebook down 8.5% over the past five trading days, Netflix down 5.4% over the same period and Yahoo down 7.6%. Excluding Tuesday's rebound - likely because of Stifel's note - RetailMeNot, too, was down 8.6% over the past week. Yet, according to Jordan Rohan, an analyst at Stifel, these recent declines should not scare investors away.
'Internet stocks often work through periods of being out-of-favor, even swift and severe pullbacks like the last few weeks,' Rohan writes in a note circulated Tuesday, noting that he believes after Nasdaq pullbacks of 5% or more - the current one is 6% - favoring stocks with earnings momentum has been the right move. 'Some of the best long-term growth stocks are still in an upward trend.'
Though Rohan believes Facebook's recent and high profile acquisitions - see: Whatsapp and Oculus Rift - have 'zero' earnings potential, and though the stock is down 21% from its peak levels, recent research indicates the social media giant, which has a 'buy' rating and $82 price target from Stifel, is increasing its footprint in the marketing and advertising world, winning advertising dollars from branding budgets and search and display budgets. 'We believe the period of earnings outperformance for Facebook will continue through 2014, and sincerely hope the management team takes a break from futuristic and experimental acquisitions,' Rohan writes.
As for RetailMeNot, Rohan says that the stock has likely been unfairly penalized by the recent IPO of competitor Coupons.com, which surged 90% on the day of its market debut but has fallen more than 20% ever since. RetailMeNot has fallen 27% in the past month - roughly since that Coupons IPO - but according to Rohan, investors would be unwise to lump the two deals sites together, as 75% of Coupons.com revenue comes from consumer packaged goods companies, while RetailMeNot's revenue comes from national retailers. RetailMeNot should also benefit from increases in engagement of its mobile app, and its revenue is poised to grow 28% year over year.
While consumers might be less than thrilled that Amazon has increased its prices for Amazon Prime, Rohan says that this is good news for competitor Netflix, and despite the stock's drop over the past week, it is likely to show subscriber growth when it reports its earnings later this month.
Unlike its fellow tech sector members, the bull case for Yahoo can be found in China. In a word: Alibaba. The e-commerce giant's IPO is probably the most anticipated IPO of the year, and Yahoo owns a 24% stake in this hot name, a holding that could net them billions. If Yahoo shows any 'hint of tax efficiency,' Rohan writes, this would add to the company's overall value.
Not coincidentally, shares of all four companies mentioned in Rohan's note traded for gains throughout Tuesday trading: Yahoo was up 2.7% approaching the closing bell while Netflix was up 3.1%, Facebook was trading for a 2.3% gain and RetailMeNot surging a whopping 6.8%.
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