4 Internet Stocks That Must Feature in a Winning Portfolio

Shutterstock photo

Internet stocks are gaining from robust growth in the e-commerce segment, increasing usage of social-media platforms as well as expanding online delivery modes.

A growing number of Internet users, improving speed and penetration, rapid adoption of 4G Volte technology, proliferation of online retail and increasing demand for videos drove Internet stocks in the first half of 2018, as reflected in the results of the quarter ending June 2018.

The optimism surrounding the Internet stocks is strongly supported by robust year-to-date performance. Notably, the Invesco NASDAQ Internet ETF (PNQI) and First Trust Dow Jones Internet ETF (FDN) returned 15.1% and 26.7%, respectively, on a year-to-date basis compared with the S&P 500 Composite's gain of 7.1%.

Robust Growth Prospects Aid Internet Stocks

The growth prospects for Internet stocks are robust primarily due to shift in consumer preferences, driven by convenience and easy accessibility.

Moreover, the improving macro-economic environment provides strong support to increasing income level of consumers, which, in turn, boosts their willingness to spend. This is evident from the surge in demand for food delivery, online travel booking, direct marketing and media services, and web hosting, among others.

Further, the ubiquitous social-media has been a key driver behind the strong performance of the Internet stocks. Focus on video streaming has been driving user engagement that is attracting advertising dollars.

Our Choices

Here we have picked four Internet stocks that investors may consider adding to their portfolio to gain significant returns.

The stocks chosen either have a Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

The e-commerce giant AmazonAMZN reported strong second-quarter earnings driven by robust performance of Amazon Web Services (AWS) and retail.

Amazon is benefiting from an expanding AWS enterprise customer base, which generates high margins. Additionally, its expanding distribution footprint bodes well for Prime.

Additionally, the company is putting in a lot of effort to leverage the popularity of its streaming service, Twitch, its primary weapon against YouTube in the field of video streaming as well as advertisement. Notably, the company's advertising revenues soared around 132% year over year in the first quarter and might as well provide the company the push to compete against advertising giants Google and Facebook.

Furthermore, the company's recent move to patent an autonomous driving technology that deals with the navigation of traffic jams, construction and weather condition confirms its entry into the self-driving industry.

With its entry into the advanced driver assistance system (ADAS) market, this Zacks Rank #1 stock has further justified its position in investors' portfolio.

The stock has gained 60.5% year to date, substantially outperforming the 29.2% rally of the industry it belongs to. The long-term earnings growth rate for the company is 26.5%.

Paycom SoftwarePAYC , also sporting a Zacks Rank #1, is a solid pick at the moment.

The company, a provider of cloud-based human capital management (HCM) software as a service solution for both employee records and talent management processes, reported strong second-quarter 2018 results and raised its full-year revenue guidance. Revenue growth seems to be steady, positively impacted by higher recurring revenues and higher traction in cloud-based offerings.

Better-than-expected demand for advanced human capital management and payroll software solutions are the tailwinds for this cash rich company with a strong balance sheet. Paycom is expected to witness growth by successfully cross-selling newer products to existing and prospective clients.

The stock has gained 76.3% year to date, substantially outperforming the 16.4% rally of the industry it belongs to. The long-term earnings growth rate for the company is 24.8%.

Another solid buy is YelpYELP , which reported solid second-quarter results driven by growth in ad revenues.

The company's shift toward selling advertising plans without any fixed duration is leading to a robust increase in paying advertiser accounts. Besides, the company is witnessing acceleration in consumer traffic across app unique devices. Significant improvement in cumulative reviews is also encouraging.

We believe that the growing total addressable market, expanding mobile reach, high quality content and improving user engagement will boost the financial performance of this Zacks Rank #2 (Buy) stock.

The stock has gained 6.6% year to date against 16% decline of the industry it belongs to. The long-term earnings growth rate for the company is 19.7%.

Last but definitely not the least is GrubhubGRUB . It is an online and mobile food ordering company, which is benefiting from an efficient delivery network and new quality-focused restaurant partners as evident from its second-quarter 2018 results.

GrubHub is riding on the shift from offline to online food ordering, which is driven by convenience and easy accessibility, especially among millennials. In February 2018, the company received a funding of $200 million from Yum! Brands, owner of Kentucky Fried Chicken (KFC) and Taco Bell, making it the exclusive delivery partner for the two coveted brands.

A diverse restaurant base, partnerships and acquisitions are likely to drive this Zacks Rank #2 stock's financials northward going ahead.

The stock has gained 84.3% year to date, substantially outperforming the 14.7% rally of the industry it belongs to. The long-term earnings growth rate for the company is 24%.

To Conclude

An investor looking to reap the benefits of the strong fundamentals and robust demand backing the Internet industry can form a profitable portfolio with the addition of the abovementioned stocks.

The Hottest Tech Mega-Trend of All      

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Amazon.com, Inc. (AMZN): Free Stock Analysis Report

Yelp Inc. (YELP): Free Stock Analysis Report

Paycom Software, Inc. (PAYC): Free Stock Analysis Report

GrubHub Inc. (GRUB): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Symbols: AMZN , YELP , PAYC , GRUB

More from Zacks.com




Equity Research

Research Brokers before you trade

Want to trade FX?