Although the biggest, most-hyped Internet stocks are among the primary casualties of the recent equity selloff, they also represent some of the best investment opportunities on the market, according to JPMorgan Chase.
The so-called FANG stocks – Facebook, Amazon, Netflix and Google – are down by about 15 per cent on average from their respective 52-week highs, as investors have targeted high-valuation stocks.
That selling pressure was likely the result of investor positioning, as well as a diminished tolerance for companies with little or no profit and free cash flow, Doug Anmuth, an equity analyst at JPMorgan, said in a note.
"We believe secular growth and underlying fundamentals remain solid," Mr. Anmuth said. "The ad market continues to shift online, driven by mobile, and we are not hearing of budget cuts early in the year."
Google, also known as Alphabet, is the top overall pick of the group based on a mix of stellar growth prospects and a reasonable valuation, the analyst said. He said he expects the shift to mobile search and YouTube should drive revenue growth, as well as rising margins in the Google search segment. Additional upside should be extracted from the balance sheet through share buybacks and higher debt, he said.
Facebook's stock is a close second top pick. "We believe Facebook advertising continues to improve, with better targeting driving deeper selection, and ultimately yielding higher ad load without materially impacting the user experience," Mr. Anmuth said.
Amazon, meanwhile, represents the best immediate opportunity as a result of its sharp recent decline in share price. The stock is down by 26.4 per cent from its late-December peak.
"While the further was a bit messy and broke Amazon's string of clean, beat and raise quarters, we believe Amazon remains on track for solid topline growth and modest margin expansion," the analyst wrote.
Lastly, while JPMorgan is overweight Netflix, the stock could be "range-bound" in the near term as investors focus on concerns of U.S. subscription growth and a coming price increase for some users.