The 'Rule Of 50%' Points To Upside At Alphabet, Alibaba, Tripadvisor & Yandex

Deutsche Bank analyst Ross Sandler used what he calls the “Rule of 50%” to pick top Internet stocks.

“This metric may be the largest driver of alpha-generating returns (both long and short) we have identified in the current stage of the overall sector, and should help inform timing of future internet investments,” he explains.

The Rule of 50% states that as Internet traffic transitions to mobile, stocks experience rough patches during the first 50 percent, but bounce back once the 50 percent mobile threshold has been crossed.

Facebook Inc FB is one of best examples of the rule in action. The company crossed the 50 percent threshold in the fouth quarter of 2012. Alphabet, or Google, crossed this point more recently in May of last year.

These Stocks Have Upside

Deutsche Bank names Alphabet Inc GOOGL, Alibaba Group Holding Ltd BABA and Tripadvisor Inc TRIP as three top Internet stocks well-positioned to benefit from the Rule of 50% in 2016.

Sandler said Alibaba has just crossed the 50 percent-GMV level, while TripAdvisor crossed 50 percent of traffic.

Further out, he added that Yandex NV YNDX could cross the threshold and "spur" shares in 2017.

Disclosure: the author holds no position in the stocks mentioned.