The wave of volatility that began to shake the market last year has weighed heavily on the tech sector, dragging many of the best performing stocks into bear market territory. Despite that, Goldman Sachs says that investors can still find compelling growth opportunities in both small-cap and large-cap stocks, per Barron’s. The investment firm’s top picks include online craft marketplace Etsy Inc. (ETSY), travel platform Expedia Group Inc. (EXPE) and on-demand streaming-video giant Netflix Inc. (NFLX). “We continue to believe the large-cap names are attractive on a risk-reward basis despite the second-half 2018 stock price declines,” wrote Goldman, adding, "We see idiosyncratic opportunities in small- and mid-cap names” as well.
3 Compelling Techs
(% off 52-week high)
- Etsy -17%
- Expedia Group -10%
- Netflix -33%
Online Marketplaces, Streaming Giant Are Buys
In a recent note to clients, Goldman upgraded shares of Etsy and Expedia to buy from neutral, and added Netflix to its America’s Conviction List.
Etsy, which sells hand-made and vintage products, as well as unique factory manufactured items, has fallen nearly 10% from its high reached towards the close of 2018. Analysts at Goldman suggest that the market is underestimating the upside from last year’s increase in the “take rate” at the e-commerce company. The take rate refers to the fees and commissions that online retailers collect on sales by third-party sellers. Goldman views Etsy’s commitment to reinvest these funds in the business as a growth driver in 2019.
Netflix, down about 33% from its 52-week high, is trading at a discount in light of its growth prospects, according to Goldman, whose 12-month price target at $400 represents a near 26% upside from Tuesday afternoon. “We believe Netflix represents one of the best risk/reward propositions in the Internet sector,” wrote the analysts.
Goldman is less upbeat on other tech stocks including online auctioneer eBay Inc. (EBAY) and social media company Snap Inc. (SNAP), downgrading both from buy to neutral. As for Snap, the investment firm says it misjudged the platform’s ability to ward off competition and improve monetization. The analysts also cut their rating on digital advertising company Criteo SA (CRTO) from neutral to sell.
Despite their cheaper valuations, it’s important that investors pick tech stocks carefully. As investors become more cautious, tech stocks could continue to fall as growth stocks lose their luster and the market again favors defensive industries and value plays. Broader market headwinds, including fears of rising rates, geopolitical uncertainty, potential regulation and slowing economic growth could also weigh on the sector.