5 Tech Names Cantor's Squali Is Buying After The Selloff
Youssef Squali of Cantor Fitzgerald commented in a note on Wednesday that recent market volatility has led to a "sharp" pullback in Internet stocks, and while he won't attempt to "call the bottom," he would be "buyers of leaders with outsized growth opportunities and huge competitive moat."
Specifically, Squali named Alibaba Group Holding Ltd (NYSE: BABA), Amazon.com, Inc. (NASDAQ: AMZN), Facebook Inc (NASDAQ: FB), Google Inc (NASDAQ: GOOG) (NASDAQ: GOOGL) and Priceline Group Inc (NASDAQ: PCLN).
Squali said these five companies all dominate their respective markets, offer growth rates in excess of their peers while their growth-adjusted valuations look "reasonable."
"We find concerns over macro risks/ China to be overblown, and the risk/reward in these names to be attractive," Squali wrote. "We also note that both the euro and British pound have appreciated relative to the USD and vs. 2Q levels. If sustained, these trends would make 3Q reported results look better vs. expectations (all else constant)."
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China Related Exposure
Squali discussed the five companies exposure to China.
Alibaba is the most dominant e-commerce player in China and is "far from maturing." As such, the analyst's long-term bullish theses remains unchanged given the country's growing middle class, and "inadequate" retail infrastructure. In addition, the recent market turmoil "appears to have had little impact" on retail spending which actually grew 10.5 percent year-over-year in July in China.
Amazon's Chinese exposure is "limited" as the company has a 1.5 percent market share (iResearch, 2014). The company is still in "investment mode" and a devaluation of the RMB should prove to be positive for margins in the short term.
Facebook has no revenue exposure to China, but is still tied in to the global economy. However, the company "stands to benefit the most" from the ongoing secular shift of ad dollars towards digital from TV. In addition, the social media platform is "the largest" and "most-engaged" with multiple drivers (i.e video ads, Instagram monetization) to fuel outsized growth.
Google has "virtually no direct exposure to China." The company's 91 percent "dominant" share of search (StatCounter) worldwide and $61 billion in cash (as of the second quarter) makes the company "relatively resilient." In addition, the recently announced holding company structure "should help bring much-needed financial transparency."
Finally, Priceline "does not have a direct exposure to China" but does cater towards outbound Chinese travelers through its partnership with Ctrip.com International, Ltd. (ADR) (NASDAQ: CTRP). Regardless, the analyst suggested there are "no visible signs" of travel demand outside China weakening.
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|Jan 2017||Aegis Capital||Initiates Coverage On||Buy|
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