Wall Street’s sell-side is providing another big boost to shares of Facebook, Amazon, Netflix and Google's parent Alphabet, a group of companies that is popular with hedge funds.
In the past eight days, at least four investment banks boosted their price targets of the so-called FANG stocks, which already have accounted for a big share of the market’s gains this year. Barclays on Friday raised its targets on Facebook, Alphabet and Amazon.com, while Morgan Stanley and UBS Group each lifted their price targets for video streaming giant Netflix the day before. BTIG increased its price target for Facebook on July 5.
Facebook was the most widely held stock among hedge funds at the end of the first quarter, according to Novus. Amazon ranked third, Alphabet was fourth, and Netflix was the 28th most popular hedge fund stock.
In a series of reports sent to clients on Friday, Barclays urged investors to add to their positions in Facebook, Alphabet and Amazon before they report second-quarter financials, saying they “have the greatest chance of trading up” when they disclose their results.
Barclays raised its price target for Facebook to $226, from $190, while lifting its target for Alphabet's series A shares to $1350 from $1250. The bank raised its price target for Amazon.com to $1850 from $1700. All three stocks continue to be rated “overweight.”
Barclays expects Facebook to report double-digit year-over-year growth on the strength of Instagram and ads for its Stories feature.
In the case of Alphabet, Barclays expects the company to beat consensus estimates for revenue, traffic acquisition costs, and operating margins. “Historically, when the company hits a trifecta like we think may happen” in the second quarter, and it occurs “against a muted sentiment backdrop, shares respond positively,” the bank told clients. Barclays reminded clients that in May it made the stock its ”top pick” following first-quarter results that disappointed investors.
Meanwhile, Barclays expects Amazon to report results that are broadly in line with expectations and guide conservatively for the third quarter. The stock remains one of its favorites among consumer internet companies.
When Morgan Stanley raised its price target for Netflix to $480, from $370, its analysts said “its competitive moat is deepening, not receding.” The bank cited the company’s continued growth in the U.S. and its view that Netflix's operating model allows it to “scale production globally to levels its competitors have not” and “continually improve the content and personalization of Netflix product.”
UBS lifted its price target on Netflix to $425 from $375 but cut its rating on the stock to “neutral” from “buy.” In response, the stock dropped nearly 5 percent over the ensuing two trading days.
The gist of its head-spinning move is the bank believes the stock reflects little downside risks from competition, free cash flow burn, and other factors. Remember, the stock has more than doubled in the past seven months alone. So, UBS asserts the risk/reward is “no longer compelling.”
About a week earlier, BTIG sharply raised its price target on Facebook to $275, from $175, stressing that Instagram is enabling the company to continue to increase time spent by mobile customers. It also points out the stock’s new price target works out to 17 times 2019’s estimated earnings before interest, taxes, depreciation, and amortization, and 24 times 2019 earnings, “neither of which feels aggressive” given the company’s continued growth.
