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Jefferies Sees Internet Stocks Making a Comeback in 2022, With up to 40% Upside

Tech stocks have been bruised, but this trio looks poised to pop in 2022.

Sign for Jefferies LLC, a global investment bank and institutional securities firm, at its global headquarters in midtown Manhattan

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By Jing Pan Jan. 17, 2022

Tech stocks are having a slow start in 2022. But Jefferies remains optimistic, especially when it comes to companies in the fast-growing internet sector.

The Wall Street firm’s internet picks fell 5% in 2021 — a particularly disappointing performance considering that both the S&P 500 and the Nasdaq gained more than 20% for the year.

Jefferies says that the difference in performance could be a “great opportunity” for internet stocks to make a comeback in 2022.

So here’s a look at three web stocks that Jefferies has given a “buy” rating to. Based on the firm’s latest price targets, all three offer double-digit upside potential.

And if you've only got a small bit of cash to invest with, and can't afford some of these blue-chip stock prices, consider fractional investing, which lets you buys fractions of shares through an app.

Meta Platforms (FB)

Facebook’s name change to Meta Platforms in October is one of the big reasons why everyone seems to be talking about the metaverse these days. But its bread-and-butter business — social media — is still firing on all cylinders.

In Q3 of 2021, Facebook’s monthly active users grew 6% year over year to 2.91 billion. Factoring in Meta’s other platforms — namely Instagram, Messenger and WhatsApp — the number of active users on at least one product totaled 3.58 billion.

Jefferies has a buy rating on Meta and a price target of US$420, implying potential upside of about 26%.

Meta is “one of the best fundamental stories in online advertising, producing consistent best-in-class ROI for marketers,” writes Jefferies.

Jefferies likes what Meta is doing in the virtual reality space, too.

“Oculus rose to the No. 1 most downloaded app in the App Store on Christmas Day, providing a clear indication that VR adoption is more mainstream than previously thought,” says the investment bank.

Shares of Meta are up 35% over the past year.

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Alphabet (GOOGL)

As the parent company of Google, Alphabet is already an internet behemoth, commanding a market cap of over US$1.8 trillion. But Jefferies believes it can get even bigger.

The investment bank has a buy rating on the company and a price target of US$3,500. With Alphabet shares currently trading at around $2,790, Jefferies’ forecast suggests a potential upside of around 25%.

Jefferies likes Alphabet’s solid fundamentals, such as strong digital ad demand, a booming cloud segment and “healthy and expanding” operating margins.

In Q3 of 2021, Alphabet earned US$65.1 billion in revenue, representing a 41% increase year over year.

Growth was across the board. Google’s advertising revenue surged 43% year over year to US$53.1 billion. Youtube ads brought in US$7.2 billion of revenue, up from US$5.0 billion a year ago. Meanwhile, revenue from Google Cloud rose 45% to US$4.99 billion.

Despite some recent sluggishness, the stock is up 60% over the past 12 months.

Trade Desk (TTD)

Trade Desk is a much smaller name compared to Meta and Alphabet, but it could be one of the bigger opportunities in the internet space.

The Calif.-based tech company offers a cloud-based platform that allows digital ad buyers to create, manage and optimize digital advertising campaigns across different ad formats and devices.

Jefferies says that Trade Desk is the best pure-play stock to capitalize on the shift to programmatic advertising, pointing to its “deep relationships and a scalable business model.”

Business has been firing on all cylinders. In Q3 of 2021, Trade Desk brought in US$301.1 million of revenue, marking a 39% jump year over year. Adjusted earnings came in at US$0.18 per share for the quarter, up from US$0.13 per share in the year-ago period.

Notably, the company’s customer retention rate has stayed above 95% over the past seven years.

Trade Desk shares are down slightly over the past year. But Jefferies sees major upside ahead.

It recently upgraded the stock from hold to buy and raised its price target on the company from US$100 to US$105, representing 40% worth of upside from current prices.

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A look beyond the stock market

At the end of the day, stocks are inherently volatile — even those that provide dividends. And not everyone feels comfortable holding assets that swing wildly every week.

If you want to invest in something that has little correlation with the ups and downs of the stock market, take a look at fine art.

Traditionally, art investing has been limited to the wealthy, but with the help of new platforms, these opportunities are now available to everyday investors as well.

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About the Author

Jing Pan

Investment Reporter

Jing is an investment reporter for Money.ca. Prior to joining the team, Jing was a research analyst and editor at one of the leading financial publishing companies in North America. Jing has covered numerous aspects of the financial markets, from blue chip dividend stocks to small cap tech stocks to precious metals and currency. An avid advocate of investing for passive income, he wrote a monthly dividend stock newsletter for the better half of the past decade. In his spare time, Jing plays basketball, the violin and the ukulele.

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