Internet Indispensable to New Normal: 5 Top Picks for 2H20 – July 1, 2020

The significance of Internet has increased manifold amid the pandemic as it emerged as a beacon of light helping people cope with the new normal in a world with no vaccine in sight.

In fact, most economies globally are enduring the ordeal on the back of services related to video conferencing, gaming, online learning, to name a few. It goes without saying that Internet has been the factor facilitating digital transformation across industries and innovations in cloud computing.

Therefore, it comes as no surprise that Internet stocks are riding on massive demand for cloud computing services, courtesy of work-from-home, online learning and remote health diagnostic trends.

Moreover, the practice of social distancing in a bid to contain the contagious virus has bolstered the usage of Internet-of-Things based services, robotics, e-commerce, contactless payment and online delivery solutions, worldwide.

Demand for SaaS-based (or Software as a Service) applications pertaining to employee collaboration, cybersecurity, infrastructure monitoring, asset performance management and human capital management solutions, telehealth care, remains significantly high.

Additionally, stay-at-home wave has increased allegiance to access social-media platforms, online gaming, music and video streaming services.

The optimism surrounding Internet stocks can be ascertained by the robust performance of Invesco NASDAQ Internet ETF (PNQI) on a year-to-date basis, which has rallied 25.4% against the SPDR S&P 500 ETF’s (SPY) decline of 4.2%.

Winning Criteria

Here we zero in on five Internet-focused large cap stocks that are well-poised to grow in the second half of 2020, amid the new normal lifestyle owing to the pandemic. Notably, large caps have strong fundamentals that help them stay afloat in a turbulent economic and business environment. Each of the five stocks has a market cap of more than $7 billion and outperformed the S&P 500 composite on a year-to-date basis.

Apart from robust earnings estimate revisions, each of these stocks has a favorable combination of a Momentum Score of A or B and a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Markedly, momentum investing calls for continued appraisal of stocks, which ensures that an investor does not pick a beaten-down name or overlook a thriving one. Momentum investors buy high on the anticipation that the stock will only ascend in the short to intermediate term.

Year-to-Date Price Performance

Zscaler (ZS Free Report) has been benefiting from steady rise in demand for cloud security as the work-from-anywhere trend gains momentum.

Notably, this Zacks #1 Ranked company’s unique offerings include four architectural advantages that firewalls cannot add. Moreover, the company’s Edge cloud for policy enforcement, multi-tenancy, proxy for SSL or TLS inspection and zero trust network access are well poised to gain adoption amid thriving remote work culture.

Zscaler has a Momentum Score of A and a market cap of $13.63 billion. The Zacks Consensus Estimate for its 2020 earnings has been revised upward by 5% to 21 cents per share in the past 30 days.

Dropbox (DBX Free Report) has been gaining from the evolving workspace demand for seamless enterprise communication tools.

The company offers a platform that enables users to store and share files, photos, videos, songs and spreadsheets. Solid demand for cloud storage, triggered by coronavirus crisis led work-from-home wave has been acting as a tailwind for this Zacks Rank #1 company.

Further, integration with leading applications like Zoom Video, Slack and Atlassian are likely to expand the Dropbox paying-user base over the long run.

Dropbox has a Momentum Score of A and a market cap of $8.80 billion. The Zacks Consensus Estimate for its 2020 earnings is pegged at 75 cents per share, having been revised upward by 2.7% in the past 30 days.

Videoconferencing titan, Zoom Video Communications (ZM Free Report) continues to add record number of subscribers and expand enterprise customer base amid the coronavirus-induced remote-working and online-learning wave. Easy to deploy, use, manage and solid scalability make Zoom Video’s software popular among customers.

Moreover, this $70.12-billion company’s efforts to eliminate the security and privacy loopholes are expected to help maintain its existing enterprise user base and attract more customers. Further, per a report from Global Market Insights, the global video conferencing market is expected to go beyond $50 billion by 2026.

Zoom Video currently has a Zacks Rank of 1 and a Momentum Score of B. The Zacks Consensus Estimate for its fiscal 2021 earnings has been revised upward by 174.4% to $1.18 per share in the past 30 days.

Wayfair (W Free Report) is witnessing strong acceleration in new and repeat customer orders. Also, an expanding active customer base and strength in the company’s direct retail business are positives.

Stay-at-home wave is encouraging spend on upgradation of living spaces holds promise for this Zacks Rank #1 company, which engages in the e-commerce business, offering furniture, décor, decorative accents, housewares, seasonal décor, and other home goods.

Moreover, the company is aggressively investing in international regions in order to bolster presence and expand in-house-brand offerings.

Wayfair has a Momentum Score of B and a market cap of $18.95 billion. The Zacks Consensus Estimate for its 2020 bottom line is pegged at a loss of $4.23 per share, having narrowed from a loss of $4.53 in the past 30 days.

Amazon (AMZN Free Report) dominates cloud computing and retail space, which positions it best to capitalize on high demand for cloud computing services and the ongoing e-commerce traction.

Strong adoption rate of Amazon Web Services (AWS) is aiding its cloud dominance. Moreover, AWS is gaining solid traction among healthcare workers, medical researchers, educational institutions and government organizations owing to coronavirus management measures. Further, Prime momentum courtesy of fast delivery services and strong content portfolio is benefiting Amazon.

Also, expanding distribution strength and workforce, which are helping in addressing the overflowing online orders during this pandemic, are major positives. Furthermore, robust Alexa skills and strong smart home product offerings are tailwinds.

The company has a market cap of $1.337 trillion. Amazon currently has a Zacks Rank #2 and a Momentum Score of A. The Zacks Consensus Estimate for its 2020 earnings is pegged at $19.91 per share, having been revised 1.3% upward in the past 30 days.

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