Buy These 5 Internet Stocks Amid Sell-Off, Cantor Fitzgerald Says

Cantor Fitzgerald Internet analyst Youssef Squali is recommending investors buy 5 stocks amid the sell-off:

• Google (NASDAQ: GOOGL) (NASDAQ: GOOG)
• Amazon.com (NASDAQ: AMZN)
• The Priceline Group (NASDAQ: PCLN)
• Facebook (NASDAQ: FB)
• Alibaba (NYSE: BABA)

"Recent market volatility has led to a sharp pullback in Internet stocks, and while we won't attempt to call the bottom, we would be buyers of leaders with outsized growth opportunities and huge competitive moat; namely GOOG, AMZN, PCLN, FB, and BABA," Squali commented.

He added, "What these five names have in common is 1) dominance of their respective markets, 2) growth in excess of peers, and 3) growth-adjusted valuations, which look reasonable to us. We find concerns over macro risks/China to be overblown, and the risk/reward in these names to be attractive. 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)."

For GOOGL, the analyst notes: "While Google is exposed to the global economic slowdown, the company has virtually no direct exposure to China. Given its dominant share of Search (91% globally in July, StatCounter), and cash position (~$61B net cash/2Q:15), we see GOOG as relatively resilient. We also view the recently announced "holding company structure" positively as it should help bring much-needed financial transparency in terms of growth, margin profile and capital intensity. GOOGL trades at 5.2x 2016E EV/revenue, 10.1x EV/EBITDA and 15.8x P/E (adj. for cash) and P/E/G of 1.2x."

For AMZN, the analyst said: "With a market share of 1.5% in China (iResearch, 2014), Amazon's Chinese exposure is limited, but the company remains in investment mode, which means that a devaluation in the RMB should actually be positive to margins short-term. AMZN's NA and AWS continue to do well, and given a ~12% decline in the stock over the past two weeks, we find the risk/reward attractive. AMZN trades at 1.8x revenue and 15.9x EBITDA on our 2016 estimates."

On PCLN, he said: "PCLN: As the largest online travel company, PCLN is exposed to a reduction in consumer discretionary spending as a result of economic weakness. That said, the company does not have a direct exposure to China and caters to outbound Chinese travelers through a distribution partnership with CTRP. With no visible signs of weakening travel demand outside China, and current trends pointing to easing FX comps in 2H:15, we remain constructive. PCLN trades at an attractive 5.8x revenue, 12.9x EBITDA, 16.3x P/E and 0.7x P/E/G on our 2016 estimates."

On FB: "Facebook has no revenue exposure to China but faces the risk of a global economic slowdown, which would depress ad demand. That said, FB is still at an early stage of growth and stands to benefit the most from the secular shift of traditional ad dollars to digital, in our view. Branded video ads on linear TV seem particularly ripe for disruption. Facebook is the largest/most-engaged Internet platform with multiple drivers (improved ad targeting, auto-play video ads, monetization of Instagram, etc.) to fuel growth well in excess of the market. Following a ~12% pullback over the past two weeks, FB is trading at 9.2x 2016E revenue, 32.1x EBITDA, 18.5x P/E and 1.2x P/E/G"

On BABA: "BABA: Alibaba is China's dominant ecommerce player, and with this segment far from maturing (growing middle class, inadequate retail infrastructure, strong cross border opportunity, etc.), we believe that our long-term thesis remains unchanged. Recent market turmoil appears to have had little impact on retail spending, which grew 10.5% Y/Y in July vs. 10.6% in June (National Bureau of Statistics). With BABA down 15% over the past two weeks, it's trading at 9.0x 2016E revenue, 17.3x EBITDA, 22.8x P/E and 1.0x P/E/G."

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