Internet stocks have gotten hit particularly hard by the 2022 stock market sell-off, but Bank of America analyst Justin Post said the market volatility has created some excellent long-term buying opportunities for choosy investors.
Post said Wednesday the internet stocks he covers are down an average of 22% year-to-date compared to just a 5% drop for the S&P 500. Post said the 2022 weakness has dropped internet stock valuations back down to the middle of their historical range, completely eliminating the COVID-19 pandemic premiums that sent stock prices soaring in 2020 and 2021.
How To Play It: Looking back to the last big drop in internet stocks back in 2008, Post said market share gainers in respective industries significantly outperformed following the sector bottom in November 2008. At the time, those market share gainers included Amazon.com, Inc. AMZN in e-commerce, Alphabet Inc GOOG GOOGL in online advertising and Booking Holdings Inc BKNG in online travel.
Today, Post said the biggest share gainers in the internet space that could outperform once internet stocks bottom include Amazon in e-commerce, Snap Inc SNAP in social media, Airbnb Inc ABNB in online travel and DoorDash Inc DASH in delivery.
Patience Is Key: Unfortunately, Post said it may be a bit too early to go all in on internet stocks just yet.
"With added recession risk on higher gas prices, more interest rate hikes ahead, and still over 100% valuation multiple downside to prior recession troughs, we still think it’s a little early to call for a valuation floor or risk-on trade," Post said.
Benzinga's Take: Internet investors may need to be patient until a major market catalyst once again triggers the risk-on trade. Those catalysts might include a resolution of the Ukrainian conflict or a significant drop in crude oil prices.
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