Analyst: Internet Sector Values 'Not Compelling'

Internet sector are "still not near compelling levels" according to an analyst, who nonetheless offered several "top picks" for the industry Thursday. Stifel's Scott Devitt said much of the sector is pressured by a strong U.S. dollar while the transition to smartphones continues to create uncertainty. The group's stock-market under-performance in 2014 leaves Devitt "slightly more optimistic" regarding valuation relative to a year ago. "But keep your powder dry because it may rain," Devitt advised investors. Devitt likes Facebook Inc.

and maintained a $94 target, although warned that the company could face increasing competition along with shifting winds in the world of advertising. Among the sector's small caps, Zulily Inc.

is also a top pick for Devitt, who launched coverage on the Seattle-based e-commerce company with a Buy rating and $30 target. Zulily should see "outsized growth" and is seeing profits early in its growth stage, according to Devitt. Also on Devitt's Favorites list: Pandora Media Inc.

, with a price target of $29. But Pandora faces increasing competition from on-demand and streaming music services, plus uncertainty surrounding upcoming arbitration of copyright disputes. EBay Inc.

, although not a "top pick" gets a Buy rating from Devitt, who maintained a $65 target. The pending split of eBay's Paypal unit could make each of the resulting two companies acquisition targets, Devitt said. Alibaba Holdings

gets a Buy and $115 target: The company faces a tall order expanding outside of China while its concentrated voting ownership along with geopolitical concerns are key risks. Also on Devitt's Buy list: Mercadolibre Inc.

and LinkedIn Corp.

. LinkedIn is vulnerable to cyclical pressures on recruitment activity, while Mercadolibre, an Argentina-based e-commerce company, competes with Amazon Inc.

.